Rate of Appreciation Slows but Unseasonal Gains Remain Elevated

11/26/2013 By: Tory Barringer 

Home prices continued to advance in September, bringing third-quarter growth to 3.2 percent, according to the S&P/Case-Shiller Home Price Indices released Tuesday.

Both the 10- and 20-city composite indices rose 0.7 percent month-over-month and 13.3 percent year-over-year in September. Since bottoming out in March 2012, the 10- and 20-city composites have recovered 22.9 percent and 23.6 percent, respectively; compared to their June/July 2006 peaks, both indices are down about 20 percent.
Price gains decelerated on a monthly basis in 19 cities in September. Las Vegas and Tampa saw the greatest slowdown, with growth rates dropping 1.6 percentage

points compared to August. Miami was the only city where growth kept its pace at 0.8 percent.
Detroit was the strongest city in September, seeing a monthly price increase of 1.5 percent—though it remains the only market still below its January 2000 level. Meanwhile, Charlotte was the weakest, reporting a decline of 0.2 percent—the first drop for that city since November 2012.
Looking at annual changes, all 20 cities reported growth, and 13 fared better than they did in August. Cleveland posted the strongest acceleration (moving from 3.7 percent annual appreciation in August to 5.0 percent in September), though it remains the second-worst performing city, beating only New York.
Las Vegas, Los Angeles, San Diego, and San Francisco had the strongest year-over-year price improvements, each posting gains of over 20 percent. Las Vegas topped the rest with a year-over-year price increase of 29.1 percent.
David M. Blitzer, chairman of the Index Committee at S&P Dow Jones Indices, said September’s numbers are proof that housing is making its way out of the rubble of the financial crisis.
“The longer run question is whether household formation continues to recover and if homeownership will return to the peak levels seen in 2004,” he said.

Negative Equity: A New Way of Life in the Recovery

11/22/2013 By: Krista Franks Brock 

Fast-paced price increases have helped bring many underwater homeowners afloat. In the third quarter, 1.4 million homeowners rose to the surface as their home values once again outranked their equity, according to the Zillow Negative Equity Report released Thursday.

The third quarter drop in negative equity rate was the largest on Zillow’s record, which dates back to the second quarter of 2011.
The negative equity rate now stands at 21 percent, down about one-third from its peak of 31.4 percent and from 23.8 percent in the second quarter, according to Zillow.
“Rising home prices and a greater willingness among lenders to engage in short sales have both contributed substantially to the significant decline in negative equity this quarter,” said Stan Humphries, chief economist at Zillow.
“We should feel good that we’re moving in the right direction and at a fast clip,” Humphries said.

However, with analysts—including Humphries-- predicting moderating price gains in the coming year, that “fast clip” is set for decline.
In fact, Humphries says negative equity will remain a persistent trait of the housing market and become “part of the new normal” for several years.
While 4.9 million homeowners have risen from underwater since the negative equity peak in 2011, one in five homeowners with a mortgage remains underwater today, according to Zillow’s data.
That’s about 10.8 million homeowners currently in a negative equity position.
The “effective” negative equity rate is even higher at 39.2 percent in the third quarter, according to Zillow.
The “effective” rate includes all homeowners who have less than 20 percent equity in their homes. This rate is significant because selling a home and purchasing a new one “requires equity of 20 percent or more to comfortably meet related expenses,” according to Zillow.
More than half of underwater homeowners are underwater by at least 20 percent, Zillow stated. Assuming Zillow’s estimate for home price growth at 3.8 percent over the next year, it will take a homeowner with 20 percent negative equity five years to rise to the surface.
Of the nation’s 30 largest metros, those with the highest concentration of negative equity are Las Vegas at 30.6 percent, Atlanta at 38.2 percent, and Orlando at 34.2 percent.

Recovering Housing Market to Spur Economic Recovery in New Year

11/20/2013BY: KRISTA FRANKS 

Next year will likely be the first year since 2000 that home purchases outpace refinances, according to Freddie Mac’s expectations. Furthermore, the rallying housing market should set the broader economy on a brighter path, according to Freddie Mac’s U.S. Economic and Housing Market Outlook for November.

“Led by a resurgent housing sector, 2014 should shape up to be better than 2013,” Freddie Mac stated in its outlook.

Housing starts, which have been slow, should rise to a pace of about 1.15 million in 2014, according to Freddie Mac.

This is more in line with the historical average of 1.1 million per year reported by the Census Bureau. In comparison, the Census Bureau recently reported household formation over the first three quarters of this year at just 380,000.

Freddie Mac expects home sales to increase 5 or 6 percent in the new year, but tight inventory will prevent further increases.

Home values will continue to increase, albeit at a slower pace. Freddie Mac expects home price growth to be about the same as home sales growth—5 or 6 percent.

Rental prices will also continue to rise, but like housing prices, their pace will moderate. Freddie Mac expects rents to rise at a pace of about 5.3 percent next year.

Mortgage rates will reach about 5 percent for 30-year, fixed-rate mortgages by the end of 2014, according to Freddie Mac. While this will not threaten affordability in most markets, it may dampen affordability in a few higher-priced markets, according to the outlook.

Also, Freddie Mac noted there may be “some volatility in the short-term” resulting from uncertainty surrounding fiscal policies, such as the debt ceiling and the Federal Reserve’s tapering of its MBS purchases.

The overall good news for the housing market translates to good news for the broader economy, according to Freddie Mac.

The rise in housing starts should translate to 700,000 new jobs, according to economists at Freddie Mac.

These new jobs will help bring the unemployment rate below 7 percent “perhaps by mid-2014,” Freddie Mac stated.

Economic growth is expected at 2.5 to 3 percent for the year, which is “more than 0.5 percentage points better than is projected for 2013,” according to Freddie Mac.

Report: Delinquency Rate Continues to Plunge

11/13/2013 By: Ashley R. Harris

Homeowners are working harder to make timely mortgage payments, according recent data from TransUnion. The mortgage delinquency rate dropped 23.3 percent in the past year, ending Q3 2013 at 4.09 percent. Last year it stood at 5.33 percent. The mortgage delinquency rate also dropped on a quarterly basis, down 5.3 percent from 4.32 percent in Q2 2013, the seventh straight quarterly decline.

Around the United States, most states experienced a decline in their mortgage delinquency rate between Q3 2012 and Q3 2013. California, Arizona, Nevada, Colorado, and Utah experienced more than 30 percent declines in their mortgage delinquency rate. Three states—California, Florida, and Nevada—had double-digit percentage drops in the last quarter.
TransUnion cultivated the data from anonymized credit data from virtually every credit-active consumer in the United States. TransUnion’s forecast is based on various economic assumptions, such as gross state product, consumer sentiment, unemployment rates, real personal income, and real estate values. The forecast would change if there are unanticipated shocks to the economy affecting recovery in the housing market or if home prices begin to depreciate once again.
“This isn’t a sample data set,” said Tim Martin, group VP of U.S. Housing for TransUnion’s financial services business unit.

“We looked at all 52 million installment-based mortgages in the U.S. and the trend is clear—the percentage of borrowers willing and able to make their mortgage payments continues to improve,” Martin continued. “The overall delinquency rate is still high relative to ‘normal,’ but a 23 percent year over year improvement is great news for homeowners and their lenders.”
The credit agency recorded 52.31 million mortgage accounts as of Q3 2013, down from 54.23 million in Q3 2012. This variable was as high as 63.14 million in Q3 2008 prior to the housing crisis.
Viewed one quarter in arrears (to ensure all accounts are included in the data), new account originations increased to 2.34 million in Q2 2013, up from 2.09 million in Q2 2012. This is a major increase from just two years ago when there were 1.32 million new account originations in Q2 2010.
“New mortgage originations showed good growth through the second quarter of this year, largely the result of increased refinance transactions driven by low rates and increasing home prices,” Martin said. “However, mortgage rates started to increase right around Memorial Day, and when the data come out next quarter, we expect it to show that new originations are decreasing as a result.”
TransUnion’s latest mortgage report also found that the non-prime population (those consumers with a VantageScore credit score lower than 700) continues to represent a smaller portion of all mortgage loans, more than 50 percent lower than was observed in 2007. Non-prime borrowers constituted 5.82 percent of all new mortgage originations in Q2 2013. In Q2 2008, non-prime borrowers represented 12.69 percent of the total.
TransUnion is forecasting that the downward consumer delinquency trend will continue in the final three months of 2013. The delinquency rate will likely be just under 4 percent at the end of the year.
“New originations will be down and non-prime borrowers will start to re-emerge,” Martin said. “At this point we believe delinquency rates will continue to decline.”

Mortgage Rates Reverse Trend, Heading Higher

11/07/2013 By: Tory Barringer 

Three weeks after the end of the showdown that closed the government, economic data has shown enough improvement to provide some lift to mortgage rates.

Freddie Mac’s Primary Mortgage Market Survey shows the 30-year fixed-rate mortgage (FRM) averaging a rate of 4.16 percent (0.8 point) for the week ending November 7, up from last week’s average of 4.10 percent. A year ago, the 30-year FRM was averaging 3.40 percent.
The 15-year FRM this week averaged 3.27 percent (0.7 point), rising from 3.20 percent.
“Fixed mortgage rates rebounded slightly this week on more positive economic data releases,” said Frank Nothaft, VP and chief economist at Freddie Mac. “Production in the

manufacturing industry expanded for the fifth month in a row in October to the strongest pace since April 2011. Similarly, the non-manufacturing sector grew for the second consecutive month in October and beat the market consensus forecast of a decline. These increases were widespread across the nation, from Chicago to Milwaukee to New York.”
Adjustable rates, on the other hand, were flat to down. The 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 2.96 percent (0.5 point) this week, unchanged from last week, while the 1-year ARM was 2.61 percent (0.5 point), down from 2.64 percent.
Financial site Bankrate.com reported similar findings in its weekly national survey, with the 30-year fixed average coming up to 4.35 percent and the 15-year fixed rising to 3.42 percent.
Bankrate’s measure for the 5/1 ARM, meanwhile, slid down 1 basis point to 3.25 percent.
“Mortgage rates moved higher this week as the post-government shutdown clouds have begun to lift. While the economic news hasn’t been stellar, it hasn’t shown that the economy cratered due to the shutdown and debt ceiling brinksmanship,” Bankrate said in a release. “This has been enough to lift yields on long-term government bonds and mortgage rates, leading in to this Friday’s release of the October jobs report.”

September Bucks Forebodings of Decelerating Price Gains

11/05/2013 By: Tory Barringer 

With recent predictions forecasting a falloff in home price increases over the next year, gains nevertheless continued at a strong pace in September, CoreLogic reported Tuesday in its monthly Home Price Index (HPI) report.

The company recorded a 12 percent annual gain in its HPI (including distressed sales) for September, representing the 19th straight monthly year-over-year increase and bringing the index to its highest point since May 2008.
The West claimed the top three spots for yearly appreciation, with Nevada (+25.3 percent), California (+22.5 percent), and Arizona (+14.6 percent) posting the highest percentages. Georgia (+14.4 percent) and Michigan (+13.9 percent) rounded out the list.

“U.S. home prices continued their ascent in September. Average home prices in nearly half the states are now within striking distance of their pre-downturn pricing peaks,” said Anand Nallathambi, CoreLogic’s president and CEO.
September’s report is of special significance, given the fact that the month marked the five-year anniversary of the start of the housing crisis. According to CoreLogic chief economist Dr. Mark Fleming, the five-year appreciation rate for all homes in the country was 3.4 percent.
On a monthly basis, home prices increased 0.2 percent over August, continuing a slowing trend that began earlier this year. Nallathambi said the deceleration in price gains “is natural and should help keep market fundamentals in balance over the longer term.”
Taking distressed sales out of the equation, CoreLogic reported a 10.8 percent annual increase and a 0.3 percent monthly increase in its HPI. Nevada (+22.4 percent) and California (+18.9 percent) were still the top spots for growth, with Utah (+13.2 percent), Arizona (+12.6 percent), and Florida (+12.6 percent) following.
CoreLogic’s Pending HPI, a proprietary metric that measures the current indication of price trends, predicts another strong month in October, with prices up 12.5 percent annually (including distressed sales). On a monthly basis, the recovery will continue to pump the brakes, resulting in an increase of only 0.1 percent.

What Does Fannie Mae's New LTV Threshold Accomplish?

11/01/2013 By: Krista Franks Brock 

As of November 1, Fannie Mae is no longer purchasing loans without minimum down payments of at least 5 percent. Industry experts with the Urban Institute’s Housing Finance Policy Center argue this move is arbitrary and likely to provide little benefit to the GSE or to taxpayers.

Fannie Mae’s decision to lower its maximum threshold for loan-to-value (LTV) ratios from 97 percent to 95 percent follows a similar decision by Freddie Mac a few years ago. While neither GSE will support loans with LTVs higher than 95 percent now, the Federal Housing Administration, Veterans Administration, and U.S. Department of Agriculture (USDA) will.
“Fannie’s policy change isn’t limiting taxpayer risk-rather it’s limiting options for borrowers,” according to Laurie Goodman and Taz George of the Housing Finance Policy Center.

In a blog post on the Urban Institute’s Metro Trends Blog site, Goodman and George said, “This change places yet another barrier in front of low- and moderate-income families, who are already facing a tightening credit box.”
While it would seem Fannie’s objective in lowering the LTV requirement would be to reduce risk, the two authors say this action would be a misguided attempt. They say, “If the intent was to reduce risk, this was a crude way to accomplish it,” mainly because among loans with LTVs of 80 percent or higher, credit scores are a better default forecaster than LTV ratios.
In fact, the default rate on loans with LTVs of 95 to 97 percent and high FICO scores is lower than the default rate for loans with LTVs of 90 to 95 percent and lower FICO scores, according to the Urban Institute.
Goodman and George also point out that historically, Fannie Mae has purchased very few loans with LTVs in the 95 to 97 percent range. From 1999 to 2012, these loans made up less than 1 percent of Fannie Mae’s purchases, and since 2005, the percentage drops even further.
“We would have hoped that the rich data provided by the Great Recession would give the GSEs the confidence to underwrite higher LTV loans with compensating factors, as the importance of these factors has been well tested and documented,” Goodman and George stated.
“Instead, Fannie Mae has chosen to draw sharp lines around a smaller permissible credit box without accounting for compensating factors,” they concluded.