Report Predicts Big Year for Housing in 2015 Based on Recent Government Actions

Author: Tory Barringer January 12, 201Share on facebookShare on twitterShare on emailShare on pinterest_sharMore Sharing Services

With 2015 less than two weeks underway, Fitch Ratings is the latest forecaster predicting great things for housing in the coming year. However, unlike other commentators, whose projections were based on encouraging market trends, the ratings agency says it's a combination of recent government actions that reinforces its view.

In a report released Monday morning, Fitch outlined five big events—all of which have taken place in the past few months—that, taken together, "could have a relatively meaningful impact on home buyer psychology, pent-up demand and housing trends in 2015 and beyond," the company says.

• The Federal Housing Administration's (FHA) announcement that it will lower insurance premiums to 0.85 percent annually: Historically considered one of the top resources for low-income and first-time homebuyers, FHA has fallen off in the past few years as it's been forced to raise premiums and require life-of-loan payments to help shore up its capital reserves. As a result of the changes, Fitch estimates that FHA's share of the new housing finance market through Q3 2014 was down to 11.9 percent from 15.6 percent in all of 2013 and 20.4 percent in 2012. With premiums set to come down by the end of January—a move the White House estimates will save the average FHA borrower $900 annually—the agency expects FHA-insured loans may become a more attractive option again.
• Fannie and Freddie's move to lower down payment requirements: In another action to open up mortgage lending, the Federal Housing Finance Agency (FHFA) announced in December that it has directed Fannie Mae and Freddie Mac to introduce programs offering down payments as low as 3 percent to qualified homebuyers. To minimize risk, FHFA said the programs will take into account compensating factors to prove creditworthiness and will feature homeownership counseling.
• FHFA's clarified rep and warrant framework designed to reduce lender confusion: Taking notice of FHFA's pursuit of certain originators over loans they sold to the GSEs, many lenders have set up stricter credit overlays (often worse than the GSEs' minimum requirements) in order to mitigate putback risk. To reassure lenders, both Fannie and Freddie updated their frameworks in November to better define what they consider to be a misrepresentation, a step that will hopefully spur originators to expand their lending criteria.
• Regulators' finalizing of the qualified residential mortgage (QRM) rule: FHFA, the Fed, the Comptroller of the Currency, and other financial regulators finalized in October a rule requiring banks to hold on to a portion of loans they sell, cutting out an exemption for low-risk mortgages. The final rule did away with an earlier provision requiring a 20 percent down payment for low-risk loans after mortgage bankers and trade groups voiced concerns about how such a requirement would restrict credit.
• A welcome decline in oil (and fuel) prices: An oversupply of oil has brought costs down by more than half, slashing costs at the pump considerably (in an interview with USA Today, Saudi businessman Prince Alwaleed bin Talal said he doesn't expect to see oil prices climb to $100 per barrel again.) The decline has left American drivers with more disposable income, opening up affordable housing options for those who were worried about their commute.

Report: Falling Negative Equity Rate Nearing Single Digits

Author: Tory Barringer January 8, 2015Share on facebookShare on twitterShare on emailShare on pinterest_shareMore Sharing Services23

The third quarter of 2014 saw more than a quarter of a million American homes return to positive equity, leaving about one in 10 still underwater,CoreLogic said in its Q3 2014 Equity Report released Thursday.

According to the company's latest estimates, an additional 273,000 U.S. homes recovered to a positive equity position in Q3, bringing the total number of mortgaged homes with equity to approximately 44.6 million—about 90 percent of all mortgaged properties in the nation.

As home values rise and borrowers continue to gain equity, CoreLogic's analysis indicates that nearly 5.1 million properties are still upside-down on their mortgage. That figure represents about 10.3 percent of all residential properties with a mortgage compared to about 13.3 percent the year prior.

"Negative equity continued to decrease in the third quarter as did the level of homes mired in the foreclosure process. This should hopefully translate into less friction in the housing market as we move forward," said CoreLogic president and CEO Anand Nallathambi. "Better fundamentals supporting homeownership in the face of higher rents should attract more first-time homebuyers to the market this year and next."

With home prices expected to appreciate about 5 percent in the next year, CoreLogic economist Sam Khater predicts the national negative equity rate should fall another 2 percentage points to roughly 8 percent—"still above average, but approaching the pre-crisis level."

The bulk of home equity recovered in the last few years has been at the high end of the housing market, CoreLogic said. The company's report shows 94 percent of homes valued at more than $200,000 are in positive equity, while 85 percent of homes below that threshold are in the same position.

Declines in negative equity in the third quarter were concentrated in a handful of states, with Nevada, Georgia, Michigan, and Florida seeing some of the biggest improvements. However, those states are still experiencing higher than average levels of underwater mortgages. The problem is worst in Nevada and Florida, which both topped the list of states with the highest negative equity rates (at 25.4 percent and 23.8 percent, respectively).

Furthermore, out of the nearly 45 million mortgage properties that are above water, CoreLogic estimates that 9.4 million (19 percent) have less than 20 percent equity, while 1.3 million (close to 3 percent) have less than 5 percent equity.

These under-equitied and near-negative equitied properties still present a challenge to the housing market, as those borrowers are likely to have a difficult time refinancing or selling their home. They're also at risk of slipping back underwater should home prices see a surprise reversal.

Report: President to Announce Reduction in FHA Premiums

Author: Tory Barringer January 7, 2015 Share on facebookShare on twitterShare on emailShare on pinterest_shareMore Sharing Services

President Barack Obama will announce this week a reduction to Federal Housing Administration (FHA) mortgage insurance premiums, according to media reports.

Bloomberg reported Wednesday that FHA will cut its mortgage insurance premiums to 0.85 percent, a 0.5 percentage point reduction. Obama is expected to make the announcement on Thursday in a scheduled speech on the housing market in Phoenix, Arizona.

FHA raised premiums in response to its declining mortgage insurance fund, which forced the agency to take a $1.7 billion bailout in 2013. Since then, it has rebuilt its capital, spurring some commentators to call for a cut.

When reached for comment, a HUD representative said he could not comment or confirm that the FHA premiums would be cut. A separate source familiar with the matter was able to confirm it, however.

The announcement would come as welcome news to many of housing's biggest trade organizations, who have been vocal in the past few months about the consequences of higher premiums.

In a statement to DSNews, Chris Polychron, president of the National Association of Realtors (NAR), said the group is hopeful at the rumor, adding that current premiums "have priced too many potential homeowners out of the market." NAR estimates that in 2014 alone, nearly 234,000 creditworthy borrowers were priced out of the housing market because of high FHA premiums.

"By lowering its fees, FHA will provide greater access to homeownership for historically underserved groups," Polychron said. "I look forward to attending the speech ... and sharing our views with President Obama."

Housing analysts have also joined the rising chorus of those urging for lower premiums. In a report put out before Wednesday's announcement, researchers Laurie Goodman, Bing Bai, and Jun Zhu at the Urban Institute argue that FHA could still net at least $2 billion in 2015 with premiums as low as 0.9 percent annually, allowing the agency to continue rebuilding its insurance fund.

"It makes sense to make up the shortfall more slowly, pricing new business more appropriately for the risk," the group said. "Thus, rather than attempting to make $5.7–$6.8 billion with its 2015 book of business ... it would serve the FHA better to lower the premiums and achieve the reserve at a more gradual pace."

Labor Market Improvements Support Economists’ Predictions for Housing Recovery

Author: Brian Honea January 2, 2015Share on facebookShare on twitterShare on emailShare on pinterest_shareMore Sharing Services31

Employment statistics released earlier in the week by the U.S. Bureau of Labor Statistics (BLS) fall right in line with analysts' recent predictions that the housing market will make a comeback in 2015.

According to the BLS November 2014 Metropolitan Area Employment and Unemployment report, unemployment rates declined year-over-year in 341 out of 372 metro areas in the U.S., while 12 areas reported jobless rates of at least 10 percent and 147 metros posted jobless rates of less than 5 percent.

Reports from economists at CoreLogic and Wells Fargo released in December indicated they believe housing will rebound in 2015 after a disappointing 2014, and they cited improvements in the U.S. labor market as a main reason why. The national unemployment rate in November (not seasonally adjusted) was 5.5 percent, more than a full percentage point lower than the rate reported for November 2013 (6.6 percent). A total of 200 metro areas had an unemployment rate below the national average of 5.5 percent in November, compared to 158 areas with an unemployment rate higher than the national average, according to BLS.

The metro areas with the highest unemployment rates (not seasonally adjusted) in November were Yuma, Arizona (23.1 percent) and El Centro, California (22.6 percent), while the lowest unemployment rates were in Lincoln, Nebraska (2.1 percent) and Fargo, North Dakota and Mankato, Minnesota (2.2 percent each). Forty-four metro areas reported year-over-year decreases of 2 percentage points or more in November, led by Decatur, Illinois (4.3 percentage points), Yuma, Arizona (4.2 percentage points), and Danville, Illinois (4.1 percentage points).

The highest unemployment rate out of the 49 metro areas with a 2000 population census of more than 1 million was in Riverside-San Bernardino-Ontario, California, at 8.0 percent. The lowest rate of those 49 metro areas was in Minneapolis-St. Paul-Bloomington, Minnesota, at 3.0 percent. Out of the 38 metro areas with annual average employment levels above 750,000 in 2013, employment increased in 37 of them. The highest increases occurred in Houston-Sugar Land-Baytown, Texas (4.4 percent) and Orlando-Kissimmee-Sanford, Florida (4.3 percent), while the only decrease occurred in Philadelphia-Camden-Wilmington, Pennsylvania-New Jersey-Delaware-Maryland (0.2 percent).

Payroll employment increased in 313 out of 372 metro areas in the U.S. in November, with the largest increases coming in Houston-Sugar Land-Baytown, Texas (+125,300), Dallas-Fort Worth-Arlington, Texas (+111,500), and New York-Northern New Jersey- Long Island, N.Y.-N.J.-Pa. (+107,900).

Fed Announces Slow Approach to Interest Rate Increases in 2015

Author: Tory Barringer December 17, 2014Share on facebookShare on twitterShare on emailShare on pinterest_shareMore Sharing Services34

The Federal Reserve announced Wednesday that it intends to take a slow approach to raising interest rates in the coming year, even as the economy continues to strengthen.

In a policy statement released following the last 2014 meeting of the Federal Open Market Committee (FOMC), the central bank reaffirmed its view that the economy is expanding at a "moderate pace," pointing to continued improvements in the labor market tempered by still-high numbers of unemployed and underemployed Americans and slower growth in the housing sector.

Given the current climate, the committee hinted that it will take steps to raise short-term interest rates in 2015, though it still would not commit to a time frame, saying only that "it will likely be appropriate to maintain ... the [current] federal funds rate for a considerable period of time."

"Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy," the Fed said in its statement.

While the phrase "considerable period of time"—commonly interpreted by analysts to be around six months—is not a new addition to the Fed's language, policymakers did clarify that they're counting the time from when the central bank ended its asset purchase program in October. If the interpretations hold out, that could signal an increase as soon as April, though many economists expect June is more likely.

In a survey, 15 of 17 officials at the Fed predicted an increase in interest rates starting next year, with the other two saying the first hikes will come in 2016.

At the same time, their forecast for rates slipped to 1.125 percent by year-end 2015, down from the last outlook in September.

Perhaps encouraged by recent monthly payroll numbers, officials predicted the unemployment rate next year will drop to 5.2–5.3 percent, a more optimistic outlook than in September. As of November, the national unemployment rate was 5.8 percent.

Economic growth, meanwhile, was pegged at 2.6–3.0 percent for 2015, unchanged despite a rosier outlook for 2014.

Consumer Sentiment Index Reaches Highest Level Since ’07 in December Reading

Author: Tory Barringer December 15, 2014 Share on facebookShare on twitterShare on emailShare on pinterest_shareMore Sharing Services2

Consumer sentiment gained another five points in an early December measure, putting confidence levels at a near eight-year high.

The Thomson Reuters/University of Michigan survey of consumer sentiment came in at a preliminary index reading of 93.8 for December, up from November's final reading of 88.8. December's report beat economists' forecasts by more than four points and puts the index at its highest level since January 2007.

Increases in the latest measure were broad-based. The gauge measuring consumer expectations jumped 6.2 points to hit 86.1, also the highest since January 2007, while the measure of consumer economic sentiment was up three points to 105.7, the highest since February 2007.

While the month's final index—due December 23—could see an adjustment, the latest reading is a positive sign in the middle of the holiday shopping season.

In a statement, survey director Richard Curtin noted that expected wage gains are at their highest level since 2008, and consumer attitudes toward buying are the most favorable they've been in several decades.

"Obviously, lower gasoline prices, well received employment reports, and a more optimistic view on the direction of the economy are helping drive consumer mood higher," said Chris Christopher, director of U.S. consumer economics for IHS Global Insight, in a note.

Christopher also gave some of the credit to lawmakers, who in the past few years have stood in the way of growth over debates like 2012's fiscal cliff and last year's government shutdown. This year, they're on track to avoid another shutdown with a last-minute deal.

"The budget deal passing is another big plus for consumer mood since continued political bickering and finger pointing is a downer," he said.

Report: Housing Market Will Gain Momentum In Next Year

Author: Brian Honea December 12, 2014Share on facebookShare on twitterShare on emailShare on pinterest_shareMore Sharing Services14

The housing market will continue its gradual recovery and gain momentum in 2015 after a disappointing 2014, according to the Wells Fargo Economics Group 2015 Economic Outlook entitled "A Whole New Ballgame," released earlier this week.

Wells Fargo cited a number of reasons in the report for its optimistic housing market predictions for next year, namely easing of credit, job and income growth, and mortgage rates near their lowest levels in a generation. The economists predict existing home sales, which dropped by 3.8 percent for the first 10 months of 2014, will grow by 4.1 percent in 2015.

Single-family starts, which grew by just 6 percent (655,000 units) in 2014 due to a weak job market, slow household formation, tight lending standards, and a backlog of troubled mortgages going through the foreclosure process, are expected to make a comeback in 2015, according to Wells Fargo. Economists expect the percentage of single-family starts to more than double next year, up to 13.7 percent.

Two major factors in the turnaround in homeownership have been the rise in foreclosures and with the earlier decline in home prices, according to Wells Fargo. The homeownership rate, which peaked 10 years ago, has fallen 4.8 percentage points down to 64.4 percent, the lowest rate for homeownership in 19 years.

"We would expect this series to overcorrect because of tight mortgage credit, changing attitudes towards homeownership and household finances continue to be repaired," the report said.

Foreclosures peaked about four years ago, resulting in large numbers of investors purchasing many homes at low prices in major metropolitan areas. The foreclosure crisis is mostly over, having decreased significantly in the last three years since their peak, but the numbers are still above long-run norms, according to Wells Fargo. Foreclosure numbers remain high particularly in judicial foreclosure states, such as Florida, New Jersey, Illinois, and Nevada, where the foreclosure process must pass through the courts.