Barclays: Trends Suggest Recovery is Sustainable

07/20/2012 By: Tory Barringer 

The housing recovery is strengthening and turning onto a sustainable path, Barclays said in a report Wednesday.

According to the firm’s U.S. Housing report, single-family housing starts are expected to trend upward, matching the strength of multi-family starts that has driven the housing recovery over the past year. Barclays also anticipates that home price indices will close out the year strong, suggesting a broadening and lasting recovery.
The rising supply and steady sales pace of single-family starts apparently encouraged homebuilders. The National Association of Home Builders (NAHB) Housing Market Index rose from 13 in mid-2011 to 35 as of July 2012. The rising index reflects the organization’s optimism in single-family sales, which in the past have been a reliable indicator for single-family starts as supply tries to keep up with demand.
“This suggests to us that single-family starts will have to rise just to keep new home inventories at historical lows. Based on our macro forecast, which has the U.S. remaining in a moderate growth environment, we forecast that housing starts will average 732,000 in Q2 12 and 760,000 in Q3 12. Against a gradual pickup in new home sales to an average of 357,000 units in Q2 12 and 363,000 units in Q3 12, months’ supply of inventory should continue to gradually move lower to 4.3 months,” said Barclays in the report.

Based on improved affordability, increased demand, and falling inventory, the firm projected a year-over-year home price increase of 2.9 percent by the end of 2012. The report cited greater than expected increases in the S&P/Case Shiller Home Price Indices in March and April, pointing to the spread of price increases even in regions hit hardest by the housing crisis.
Barclays noted that its baseline forecast assumes that policymakers will work to prevent the European financial crisis from becoming a global issue on the scale of 2008’s crisis. The firm also assumed that U.S. legislators will not impose any excessive financial tightening. If these events occur, Barclays said, the risk of another U.S. recession will increase, and housing demand will likely fall off, leading to decreased prices.
Given this information, Barclays issued its prediction that second-quarter profits for homebuilders are likely to increase, with new orders showing the largest year-over-year increase since 2005. This momentum is expected to continue through the second half of 2012, leading to a relatively successful year.
Barclays also expects to see firm and favorable building prices during the spring selling season, with homebuilders cutting incentives and increasing prices. Several homebuilding companies, including Hovnanian Enterprises, Toll Brothers, and KB Home, reported favorable pricing trends during the quarter. Only two builders-KB Home and Beazer Homes USA-are expected to be unprofitable.
Based on the happenings in the year’s second quarter, Barclays announced that it is adjusting its ratings on several building material credits that are likely to benefit from the upturn in housing demand. Owens Corning was upgraded to from Market Weight to Overweight, while Masco, USG, and Whirlpool moved up from Underweight to Market Weight.

Housing Market Gains Strength as Mortgage Rates Slip Again

07/19/2012 By: Tory Barringer 

The third week of July brought news of more mortgage rate lows, according to Freddie Mac’s Primary Mortgage Market Survey (PMMS).

For the week ending July 19, the 30-year fixed averaged 3.53 percent (0.7 point), down from 3.56 percent the previous week and 4.52 percent the year before. In all of 2012, the average 30-year fixed has only gone to 4.00 percent or higher for one week.
The average 15-year fixed for the week was 2.83 percent (0.6 point), down from 2.86 percent the week before and 3.66 percent at the same time in 2011. This week marks the eighth consecutive week that the average 15-year fixed-rate mortgage has been below 3.00 percent.

The 5-year adjustable-rate mortgage (ARM) also fell, averaging 2.69 percent (0.6 point), a drop from 2.74 percent last week. The 1-year ARM saw no changes, hovering at 2.69 percent (0.4 point).
Frank Nothaft, VP and chief economist at Freddie Mac, explained how the low rates are aiding in the housing market’s recovery.
“With little signs of inflation and the Federal Reserve’s ‘Operation Twist’ keeping U.S. Treasury bond yields in check, fixed mortgage rates are remaining low and helping to stir the housing market,” said Nothaft. “For instance, the 12-month growth rate in the core Consumer Price Index has been in a narrow 2.1 to 2.3 percent band over the past nine months ending in June. Meanwhile, new construction on one-family homes rose for the fourth consecutive month in June to its strongest pace since April 2010 with builders restocking their lean inventories of new homes. In fact, homebuilder confidence for the next six months rose for the third month in a row in July to its highest reading since March 2007.”
Bankrate also posted new record lows, with the 30-year fixed falling to 3.78 percent from 3.79 percent the week before. The 15-year fixed averaged 3.04 percent, inching down from 3.05 percent in the previous survey. Meanwhile, the average 5/1 ARM rate fell to 2.89 percent, a slide down from 2.95 percent.

Mortgage Defaults Down in June, Index Reveals

07/17/2012 By: Tory Barringer 

An already positive trend in mortgage defaults continued through the month of June, according to data released Tuesday in the S&P/Experian Consumer Credit Default Indices.

The data shows that most loan types-including bank card and first and second mortgage loans-saw a decrease in default rates, many of them for the sixth consecutive month. Four loan types posted their lowest rates since the end of the recent recession.

The national composite fell in June to 1.52 percent from 1.62 percent in May. The first mortgage default rate decreased to 1.41 percent (from 1.50 percent in May and 2.02 percent in June 2011), a level last seen in May 2007. The second mortgage default rate dropped to an eight-year historic low of 0.73 percent in June (down from 0.88 percent in May and 1.40 percent a year ago).
“June 2012 data continued a positive trend in consumer credit quality,” said David M. Blitzer, managing director and chairman of the Index Committee for S&P Dow Jones Indices. “Consumer default rates are falling, and we are approaching new lows across most loan types. In the last recession, most default rates peaked in the spring of 2009; since then the decline has been bumpy but consistent.”
Of the five metropolitan statistical areas (MSAs) covered in the data, Dallas posted the lowest rate, falling down from 0.94 percent in May to 0.87 percent in June. Los Angeles followed with nearly double Dallas’ rate (1.60 percent in June, down from 1.82 percent in May). New York was the only MSA to post a default rate increase in June (up to 1.64 percent from 1.61 percent in May).
Blitzer said the data is evidence of better household financial conditions across the country.
“There is only positive news in June’s numbers,” he said. “In the past three years, households have come a long way in repairing their balance sheets.”

LPS: Home Price Index Increasing at Fastest Rate Since 2005

07/16/2012 By: Tory Barringer 

Lender Processing Services, Inc.‘s (LPS) Applied Analytics division released its updated home price index (HPI), showing that although prices fell year-over-year, the HPI increase from this year’s low has been the most significant jump up in years.

The company’s recent HPI is an update from an earlier release to reflect residential sales concluded during April 2012. The index showed that home price values fell 0.1 percent from April 2011 to April 2012 ($201,000 to $200,000). However, price index values rose from January’s low ($195,000) at a pace not seen in more than half a decade.
“Home prices have risen 2.5 percent so far this year, indicating an exceptionally strong spring,” said Raj Dosaj, VP of LPS Applied Analytics. “While prices typically see a boost in the spring, the magnitude and speed of this increase and its consistency across the nation have not been seen since October 2005.”

The accelerated rate of the HPI’s increase represents an annualized rate of 13.1 percent per year (compared to negative 6.1 percent/year from May 2007 to January 2012). LPS noted that the current pace may not continue, however, and only pointed it out for comparison to the steady decline in recent years.
Prices increased in 563 of the 579 metropolitan statistical areas (MSAs) covered by LPS data and fell less than 0.2 percent in the remaining 16 MSAs. Los Angeles and Hartford, Connecticut saw very small decreases-0.04 and 0.03 percent, respectively.
Among the 26 biggest MSAs overlapped by LPS data and the Bureau of Labor Statistics, most showed increases of half a percent or more. Pittsburgh and Cincinnati posted slight increases (0.4 percent and 0.2 percent, respectively), and Los Angeles was the only MSA that did not post an increase in HPI.
The data showed sales volume staying near record lows. Volume started trending downward at the beginning of 2006 and fell along with HPI, bumping up only slightly with HPI at the end of the first-time buyers’ tax incentive in April 2010.
Distressed sales accounted for more than a third of sales volume.
Foreclosure and short sale discounts rose slightly, and the difference between the two closed even further (a 25 percent discount for foreclosures and a 22 percent discount for short sales).

Redfin: Rising Demand, Falling Supply Driving Home Prices Up

07/13/2012 By: Tory Barringer 

Real estate broker Redfin released the June results of its Real-Time Home Price Tracker, showing home price increases in nearly all 19 major U.S. markets.

The tracker showed an average year-over-year price gain of 3 percent across all major markets and a monthly gain of 2.6 percent. Sales volumes also rose year-over-year (a 7.4 percent increase) but fell 1.1 percent month-over-month. Overall inventory levels declined, falling 25.3 percent from June 2011 and 2.4 percent from May this year.
The price data, combined with an earlier Redfin report that showed demand broadening, points to a strengthening market, said Redfin CEO Glenn Kelman. Kelman expects prices to continue to rise, but said he’s interested to see what happens next.

“Prices in June rose year over year for the second straight month, but the true test lies ahead,” said Kelman. “For the first time in five years, we’re seeing sellers enter the market to take advantage of rising demand, not just out of sheer necessity. We thus expect listing prices to increase, even as employment remains weak and Europe’s debt crisis continues. In competitive markets like the San Francisco Bay Area, buyers will likely rise to the bait. Elsewhere the market may falter.”
Out of the 19 markets served by Redfin, 16 showed annual price increases, with Phoenix posting the greatest gains (28.7 percent, the only double-digit year-over-year increase in all markets). Of the markets that posted decreases, Long Island suffered the most (a 4.4 percent drop). In month-over-month data, 16 markets showed price increases-Portland and California’s Inland Empire stayed flat, and Austin fell 0.1 percent.
Additionally, the tracker showed that homeowners who listed their homes sold very quickly, with all single-family homes listed in the first three weeks of June finding a buyer within two weeks of debut. The San Jose market actually saw 52.5 percent of homes selling within that short time frame.
While sales occurred quickly, the number of closings grew only modestly since last year, owing partly to lack of inventory. Closings of single-family homes increased 4.3 percent since last year. The biggest drops in sales volume were found in places where inventory was in shortest supply: Sacramento, San Jose, the Inland Empire, and Denver.

Weak Jobs Report Sends Mortgage Rates Tumbling Again

07/12/2012 By: Tory Barringer 

Freddie Mac’s latest Primary Mortgage Market Survey (PMMS) showed average fixed mortgage rates finding yet another record low.

The 30-year fixed averaged 3.56 percent (0.7 point) for the week ending July 12, down from 3.62 percent the previous week. At the same time in 2011, the 30-year fixed averaged 4.51 percent. This week marks the 16th straight week that the 30-year average has stayed below 4 percent.
The 15-year fixed also fell, averaging 2.86 percent (0.7 point), a drop from 2.89 percent last week. A year ago, the 15-year fixed averaged 3.65 percent.

The 5-year adjustable-rate mortgage (ARM) also fell, averaging 2.74 percent with a 0.6 point (down from 2.79 percent the week before). The 1-year ARM inched up a bit, going up to 2.69 percent (from 2.68 percent a week ago).
Frank Nothaft, VP and chief economist at Freddie Mac, attributed the falling rates to easing Treasury bond yields following June’s disappointing jobs report.
“Following a lackluster employment report for June, long-term U.S. Treasury bond yields eased somewhat this week, allowing fixed mortgage rates to reach yet another record low,” said Nothaft. “Only 80,000 net new jobs were added to the economy last month, not enough to lower the unemployment rate from 8.2 percent. This was the concern of the Federal Reserve’s monetary policy meeting held June 19-20. Minutes released from that meeting on July 11 revealed that a few members felt further monetary stimulus was needed to promote satisfactory growth in employment to meet the Committee’s goal.”
Bankrate’s findings showed that the jumbo 30-year fixed fell to 4.44 percent, while the 15-year fixed drop to 3.05 percent-both record lows. The popular 5-year ARM also fell to a new record low of 2.95 percent.
“Between the European debt crisis and evidence of weaker economic growth both in the U.S. and around the globe, investors have had plenty to worry about,” a release from Bankrate read. “And when investors worry, they gravitate toward secure investments like U.S. government bonds, to which mortgage rates are pegged.”

June Sees Housing Confidence Boost in Spite of Economic Worries

07/09/2012 By: Tory Barringer 

Downturns in economic confidence hasn’t shaken consumers’ optimism in the housing market, Fannie Mae’s National Housing Survey for June showed.

According to the survey, the average home price expectation rose to 2 percent in June, up 0.6 percent from May and the highest recorded value since the survey began two years ago. In addition, 35 percent of respondents expect that home prices will go up in the next year, the highest level recorded since the survey’s inception.
Thirty-seven percent of respondents said they think mortgage rates will go up in the next 12 months, a drop of 4 percentage points from May. According to Freddie Mac’s Primary Mortgage Market Survey, rates steadily fell through much of the year’s second quarter, reaching new lows week after week.

The combination of low rates and low home prices spurred a small boost of confidence in the housing market. The percentage of respondents who said it is a good time to buy a home increased slightly to 73 percent, while the percentage who said it is a good time to sell remained flat at 15 percent. Sixty-nine percent said they would buy if there were going to move, an increase of 6 percentage points from May’s survey and the highest level since the survey began.
This optimism grew in spite of faltering confidence in the economy. An upward trend of confidence in the economy saw a stall in June, with 36 percent of respondents saying they believe the economy is on a right track-a slight drop from April and May.
Forty-two percent of respondents said they expect their financial situation to stay the same over the next 12 months, a decrease of 4 percentage points. The number of those who expect their situation to get better steadied at 43 percent. Thirteen percent said they expect their situation to get worse, a slight increase from the last survey.
Finally, the survey found that household expenses remained stable, with 55 percent reporting that expenses stay about the same as they were a year ago. The number of respondents reporting a household income higher than it was a year ago fell 4 percentage points to 18 percent, while the percentage reporting a lower income stayed flat at 15 percent.
“While consumers remain cautious about the general economy, their attitudes toward the housing market continue to improve,” said Doug Duncan, SVP and chief economist of Fannie Mae. “Although this positive trend may be short-lived if the general economy falters, one might ask whether consumers are increasingly seeing the current environment as a unique opportunity to buy a home while home prices remain depressed, rental costs are increasing, and interest rates are near historic lows.”