Rising Prices Could Lift 3.5M Homeowners Out of Negative Equity

11/29/2012 By: Krista Franks Brock 

While almost one-quarter of homeowners remain underwater, rising home prices over the past year have some economists hopeful negative equity could begin to diminish in coming months.

“The negative equity problem is still crippling many homeowners and the wider economy,” Capital Economics stated in a report.
In addition to the almost one-fourth of homeowners who owe more on their mortgage loans than their homes are worth, almost half of homeowners do not meet the 80 percent loan-to-value ratio required for a standard refinancing.
While “[a]dmittedly, the recovery is still in its infancy,” Capital Economics sees the potential for 3.5 million homeowners to move out of negative equity positions over the next 12 months.

CoreLogic reports prices have risen 5 percent over the past 12 months, and Capital Economics reports the greatest movement is occurring in the same locations that experienced the greatest price declines and highest instances of foreclosures and negative equity during the housing crisis.
For example, about 40 percent of homeowners in Arizona and Florida are underwater. However, home prices have risen 18.7 percent and 6.3 percent, respectively, in these two states over the past year.
While Capital Economics is sticking to its prediction that house prices will rise about 5 percent next year, the economists admit “the upside risks to that forecast are clearly rising.”
So far this year, rising home prices have helped 1.3 million households rise out of negative equity, according to CoreLogic.
If home prices were to rise by 10 percent next year, about 3.5 million borrowers would be lifted out of negative equity and 6 million would become eligible for standard refinancing after seeing their loan-to-value ratios fall back to or below 80 percent.
“The faster prices rebound, the quicker the negative equity problem will be resolved,” Capital Economics stated.
With home prices still about 27 percent below their 2006 peak, 10 percent under-valued compared to current rental rates, and 20 percent under-valued compared to per capita incomes, Capital Economics sees no need for concern over another bubble as prices continue to rise

Consumer Debt Continues to Fall with Mortgages Leading the Way

11/28/2012 By: Krista Franks Brock 

Consumer debt declined in the third quarter, largely due to decreasing mortgage debt throughout the nation, according to the latest Quarterly Report on Household Debt and Credit released by the Federal Reserve Bank of New York.

After decreasing by $74 billion in the third quarter, consumer debt now stands at about $11.31 trillion. This is 0.7 percent below last quarter and continues a downward trend of almost four years.
Mortgage balances make up the bulk of household debt but are on the decline as well. After a 1.5 percent decline over the third quarter, Americans hold $8.03 trillion in mortgage debt.

Home equity lines of credit also declined, falling by $16 billion or 2.7 percent over the quarter.
While mortgage debt is declining, other categories of debt rose 2.3 percent over the same quarter.
Mortgage delinquencies, however, are also declining, and foreclosures are slowing.
In the third quarter, 5.9 percent of mortgages were 90 or more days delinquent, down from 6.3 percent in the second quarter.
Delinquency rates for home equity lines of credit did not improve over the quarter, but neither did they decline. They remained constant at about 4.9 percent.
Foreclosures slowed by about 5.5 percent over the third quarter with about 242,000 new foreclosures showing up on credit reports during the three-month period.
At the same time, originations rose to $521 billion, according to the Fed.
The improvement in mortgage delinquencies is consistent with the broader trend of improving debt delinquencies overall, which declined from 9 percent in the second quarter to 8.9 percent in the third.

FHFA's Index Continues to Register Price Increases

11/27/2012 By: Esther Cho 

The Federal Housing Finance Agency (FHFA) reported home prices continued to climb higher in September, with prices gaining by 0.2 percent from August.

On the same day Tuesday, the Case-Shiller Indices posted a similar monthly increase of 0.3 percent.
FHFA’s house price index (HPI) also revealed a quarterly price gain of 1.1 percent from the second to the third quarter. Compared to the third quarter last year, prices rose 4 percent.

The agency stated the monthly index has increased for eight straight months now.
“With significant growth in home prices during the quarter and a modest inventory of homes available for sale, house price movements in the third quarter were similar to what we observed in the spring,” said FHFA Principal Economist Andrew Leventis.
Yet, even with the consistent price gains, Leventis added, “a number of factors continue to affect the recovery in home prices such as stagnant income growth, high unemployment levels, lingering uncertainty about the macroeconomy, and the large number of homes in the foreclosure pipeline.”
On a quarterly basis, the index also found price increases for 39 states. States that saw significant quarterly increases included
Delaware (+5.8 percent), Arizona (5.4 percent), and Nevada (+4.2 percent).
Of the nine census divisions observed, the Mountain led with a 3 percent quarterly gain. The Pacific region saw a 2 percent quarterly increase, while the East South Central and Middle Atlantic both struggled with quarterly losses of 0.15 percent.
FHFA’s report is based on data for Fannie Mae and Freddie Mac mortgages originated over the past 37 years.

Homeownership Remains Low Despite Decreasing Burden of Owning

11/16/2012 By: Krista Franks Brock 

The landscape of homeownership has undergone significant changes in recent years: The homeownership rate has declined, but so has the cost burden of owning a home. Both of these trends are most prevalent among young homeowners, according to a recent report from Fannie Mae.

The national homeownership rate has declined in each of the past four years, according to the most recent Census data, which extends through 2011. The 2011 homeownership rate of 64.6 is 2.6 percentage points lower than the 2007 rate.
The decline among those 25 to 44 years of age is more than twice the overall decline.
This shift, which Fannie Mae attributes to the Great Recession, comes after a decade of steady homeownership increases in which young households played a major role.

Despite the recent declines in homeownership, the cost burden of owning a home decreased in 2011 and has “fallen substantially for young owners during the last four years,” according to Fannie Mae.
When measuring housing cost burden, analysts often look for households paying more than 30 percent of their gross income in housing costs, which analysts define as rental or mortgage payments combined with utility spending.
In 2011, the percentage of homeowners who fell into this category decreased by about one percentage point. In contrast, the number of renters in this category grew.
The percentage of 25 to 44 year-old renters who paid more than 30 percent of their gross incomes on housing costs rose 4 percentage points between 2007 and 2011.
In the same timespan, the percentage of homeowners of the same age who paid more than 30 percent of their incomes on housing costs declined by 5.8 percentage points.
Rising affordability among younger homeowners can be attributed to low mortgage rates and perhaps “exits from homeownership by households who had high and unsustainable housing cost burdens,” Fannie Mae stated in its report.
Another factor is tightening mortgage standards, which “may have also helped to create a cohort of young homeowners who have housing costs that are better aligned with incomes,” according to Fannie Mae.
The report also noted growth for the single-family rental industry, which has attracted former homeowners who may be locked out of the market due to a foreclosure.

Threat of Shadow Inventory Fades as Delinquencies, Foreclosures Decline

11/15/2012 By: Esther Cho 

The percent of loans in foreclosure, or the foreclosure inventory rate, fell to the lowest level since the first quarter of 2009, according to the latest delinquency survey from the Mortgage Bankers Association (MBA).

On a non-seasonally adjusted basis, the foreclosure inventory rate in the third quarter was 4.07 percent, down 20 basis points from last quarter and 36 basis points from a year ago. MBA reported the quarterly decrease was the largest since the survey’s history.
“The level however, is still roughly four times the long-run average for this series as we continue to see back logs of loans in the foreclosure process in states with a judicial foreclosure system,” said Mike Fratantoni, MBA’s VP of research and economics, in a release.
MBA noted five states alone accounted for 51.7 percent of the nation’s share of foreclosure inventory: Florida (23.4 percent), California (8.3 percent), New York (7.2 percent), Illinois (6.5 percent) and New Jersey (6.3 percent).
On a seasonally adjusted basis, the national delinquency rate stood at 7.40 percent in the third quarter, according to the survey. The decrease is a quarterly and yearly decline of 18 and 59 basis points, respectively.
The non-seasonally adjusted rate, however, increased quarterly by 29 basis points to 7.64 percent. The MBA explained the a typical seasonal pattern is for the rate to increase from the second to third quarter.

The delinquency rate includes loans that are at least 30 days or more past due but not in foreclosure and covers mortgages on one-to-four-unit residential properties.
The delinquency rate for loans that are 90 days or more past due was 2.96 percent, a drop of 23 basis points from the second quarter and 54 basis points from last year.
Fratantoni explained the decline in mortgage delinquencies was helped by a decline in 90-plus delinquencies.
“The 90 day delinquency rate is at its lowest level since 2008, and together with the decline in the percentage of loans in foreclosure, this indicates a significant drop in the shadow inventory of distressed loans-a real positive for the housing market,” Fratantoni stated.
The rate for 30-day delinquencies increased to 3.25 percent, rising quarterly and yearly by 7 and 6 basis points.
“The 30 day delinquency rate increased slightly, but remains close to the long-term average for this metric. Given the weak economic and job growth in third quarter, it is not surprising that this metric has not improved,” he added.
The serious delinquency rate, which includes loans 90 days or more past due or in the process of foreclosure, declined yearly by 86 basis points to 7.03 percent.
On a non-seasonally adjusted basis, the percentage of loans that began the foreclosure process in the third quarter also fell, dropping 18 basis points from last year to 0.90 percent. Quarter-over-quarter, the rate was down by 6 basis points.
“The improvement in total delinquency rates was accompanied by a further drop in the foreclosure starts rate, which hit its lowest level since 2007,” Fratantoni noted.
In a commentary, Capital Economics also suggested the data points to a decline in shadow inventory.
“Admittedly, we estimate that there are still a very high 3.8m homes which are waiting in the wings to join the visible supply. But this is down from a peak of 5.1m. In other words, the threat to the housing recovery from the shadow inventory is fading into the background,” the research firm stated.