MORTGAGE DELINQUENCY RATE DROPS NEARLY 25% IN LAST YEAR

The mortgage delinquency rate (the rate of borrowers 60 days or more delinquent on their mortgage) dropped 23.3 percent in the past year, ending the third quarter at 4.09 percent, down from a year earlier when the rate stood at 5.33 percent, according to data gathered from TransUnion’s proprietary Industry Insights Report. The mortgage delinquency rate also dropped on a quarterly basis, down 5.3 percent from 4.32 percent in the second quarter, the seventh straight quarterly decline.

All 50 states and the District of Columbia experienced a decline in their mortgage delinquency rate between third quarter 2012 and third quarter 2013. Five states – California, Arizona, Nevada, Colorado, and Utah – experienced declines of 30 percent or more in their mortgage delinquency rate. Three states – California, Florida, and Nevada – had double-digit percentage drops in the last quarter.

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 the second quarter.

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.
Source: CAR Newsline, 11/20/2013

California Homes Now Affordable to only 1/3 of Californians

Housing affordability is on a prolonged downhill slide in California, falling for the sixth time in the third quarter of 2013. As measured by The California Association of Realtors® (C.A.R.) Traditional Housing Affordability Index (HAI), the percentage of home buyers who could afford to purchase a median-priced, existing single-family home in the state fell by four percentage points to 32 percent compared to the first quarter of the year and was down from 49 percent in the third quarter of 2012.

The affordability index had reached an all-time high of 56 percent in the first quarter of 2012 but has trended lower every quarter since. The third quarter of 2013 marked the first time the HAI has fallen below 35 since the third quarter of 2008.

Home buyers needed to earn a minimum annual income of $89,170 to qualify for the purchase of a $433,940 statewide median-priced, existing single-family home in the third quarter of 2013. The monthly payment, including taxes and insurance on a 30-year fixed-rate loan, would be $2,230, assuming a 20 percent down payment and an effective composite interest rate of 4.36 percent. A year earlier it required an annual income of $65,828 to purchase a median priced home of $339,930 in California with an interest rate of 3.64 percent.

Nearly every county experienced a double-digit decline in affordability when compared to last year, reflecting the substantial increase in California home prices on a year-to-year basis. Sacramento, Monterey, and Sonoma counties experienced the largest year-to-year declines, while San Mateo, Marin, and San Francisco counties experienced the smallest.

San Bernardino was the most affordable county in the state with an index of 64 percent. San Mateo was the least affordable at 15 percent.

Source: DS News, November 7, 2013

Number of U.S. Mortgages Going Unpaid = 4,594,000

Lender Processing Services provided the media with a “first look” at the company’s mortgage performance statistics for the month of September.

The industry’s foreclosure inventory continued its downward trend, and while delinquencies were up slightly from the previous month, they were down when comparing the numbers year-over-year.

LPS counts a total of 3,266,000 mortgages nationwide that are 30 or more days past due but not yet in foreclosure. That tally represents 6.46 percent of all outstanding mortgages.

September’s delinquency rate is 4.23 percent higher than the rate reported for August, but remains 12.63 percent

below September 2012’s rate. Of the more than 3 million delinquent loans, LPS says 1,331,000 have missed at least three payments but haven’t started the foreclosure process.

Another 1,328,000 mortgages are currently winding their way through foreclosure pipelines, according to LPS’ data. That total puts the nation’s pre-sale foreclosure inventory at 2.63 percent in September, down 1.29 percent from the month prior and down 32.18 percent from last year.

All-in-all, there are 4,594,000 mortgages going unpaid in the United States. Comparatively speaking, the nation’s non-current total stood at 5,640,000 in September 2012.

LPS reports the states with the highest percentage of non-current loans (non-current combines foreclosures and delinquencies as a percentage of all active loans in the state) include: Florida, Mississippi, New Jersey, New York, and Maine.

North Dakota has the lowest percentage of non-current loans among states, followed by South Dakota, Alaska, Montana, and Wyoming.

LPS’ findings are derived from its loan-level database representing approximately 70 percent of the overall mortgage market. The company will provide a more in-depth review of this data in its monthly Mortgage Monitor report, which is scheduled for release in early November.

Source: DSNews, October 24, 2013

Recent Articles

California Home Sales Hitting Record Levels

California saw an increase in home sales levels not seen since before the crisis.

An estimated 36,027 new and resale houses and condos sold statewide last month, according to recent data from DataQuick. That was down 15.3 percent from 42,546 in August, but up 5.9 percent from 34,011 sales in September 2012, according to San Diego-based company.

The amount of sold homes was the highest for any September since 40,216 homes sold in September 2009. September sales ranged from a low of 24,460 in 2007 to a high of 69,304 in 2003. Last month’s sales were 16.7 percent below the average of 43,253 sales for all the months of September since 1988.

Indicators of market distress continue to decline. Foreclosure activity remains well below year-ago and peak levels reached in the last five years. Financing with multiple mortgages is low, while down payment sizes are stable, according to DataQuick.

The median price paid for a home in California last month was $355,000, down 1.7 percent from $361,000 in August and up 23.7 percent from $287,000 in September 2012.

Last month’s figure was down from 7.8 percent in August and 18.0 percent a year earlier. Foreclosure resales peaked at 58.8 percent in February 2009.

The typical monthly mortgage payment that California buyers paid last month was $1,429, down from $1,456 the month before and up from $1,027 a year earlier. Adjusted for inflation, last month’s payment was 38.1 percent below the typical payment in spring 1989, the peak of the prior real estate cycle. It was 49.9 percent below the current cycle’s peak in June 2006.

Source: DSNews, October 18, 2013

Reasons You Should Buy a Home During the Holiday Season

The year-end holiday season is a good time for gift-exchanging, entertaining and general merriment. But what about buying a house? Should you try to do that in November or December, too?

If you're not picky about the home you intend to buy, the answer might be yes.

Sellers tend to avoid the end of the year due to the short days, wintry weather and conventional wisdom that says buyers are otherwise occupied, says Tim Deihl, associate broker at Gibson Sotheby's International Realty in Boston. But those who do choose to sell at year-end are often under pressure and highly motivated to cut a deal.

"A seller who's looking to move a piece of real estate during the holidays is a seller who needs to sell, because nobody in their right mind would pick that as the most convenient time to list their property," Deihl says.

And that's why the year-end might be a smart time to buy: Determined house-hunters can take advantage of sellers' urgency.

Downside: Fewer homes for sale

The biggest downside is the limited supply of for-sale homes, which occurs mainly because sellers are so uninterested.

"You won't have tons of inventory to pick through," Deihl warns.

If you can't find a home you like, you might be able to tap into homes that aren't on the market, says Ken Pozek, a real estate agent at Keller Williams Realty in Northville, Mich. One strategy is to research what brokers call "old expires," which refers to homes that were for sale several years ago but weren't sold at that time.

Another approach is for the broker to send letters to homeowners in your preferred neighborhood, trawling for someone who's willing to sell a home that meets your criteria. A third technique is to call brokers who sell a lot of homes in your target area and ask them about homes that aren't yet listed, but are being prepped for sale and are "coming soon."

"If they make the right calls to the right agents, they will trip over those deals," Pozek says.

Upside: Winter clearance prices

Less competition from other buyers during the holiday season might mean you'll be able to negotiate a favorable price for a home you want to purchase.

"Those properties oftentimes are priced to sell," Deihl says. "It could be an opportunity to sacrifice a little bit of time during an otherwise very busy time of the year to get a better investment opportunity."

Still, with fewer homes from which to choose, you might have to lower expectations. "If a house comes up that works for you, it should be a pleasant surprise. I wouldn't set a realistic expectation of finding your dream home during that period," Deihl adds.

Caveat: Seasonally obscured defects

One pitfall in year-end house shopping is that homes in cold-weather states might have defects hidden by snow, only to be discovered by thaw in spring. That should be a concern for buyers in, say, the Northeast in December, January and early February, Deihl suggests.

"Snow covers a lot of things," he says. "Make sure you understand the landscaping and (feel assured) that the sellers aren't trying to hide something."

Photographs of the home taken earlier in the year and a home inspection can help mitigate some of the risk that a home might be listed in the snowy season to hide its faults.

Who's working – and who's not?

Not only sellers and buyers, but also real estate professionals like to take time off from work in November and December. Realtors and mortgage brokers have friends and family, too.

That said, many pros do work during these months, precisely because they know many buyers have vacation time to devote to year-end house hunting, Pozek says.

Either way, it's a good idea to ask your agent what his or her plans are so you won't be caught off guard or left hanging if your calls or emails suddenly aren't answered as quickly as you'd expected.

Individual mortgage brokers also might take some time off at the end of the year. But it would be unusual for a mortgage company or bank to be closed any normal business day other than Thanksgiving, the day after Thanksgiving, Christmas Day and New Year's Day, according to Julie Miller, branch manager at Broadview Mortgage in Tustin, Calif.

"I don't know of any mortgage company or bank that closes for longer than the typical holidays," she says.

A new home for the holiday

Buyers can ease into year-end home shopping by completing holiday tasks ahead of time. "Check some holiday things off early, so you don't have to scramble to take care of them while you're scrambling to take care of your mortgage," Deihl suggests.

If you're a serious buyer, you needn't be shy about intruding into sellers' homes at a time normally reserved for family and friends. If a home is for sale, presumably the owners want sincerely interested buyers to see it.

"If a seller is willing to put their house on the market during the holiday season, they really want buyers to come in," Pozek says. "If there is a for-sale sign, it's a welcome sign."

Source: abcnews.go.com, October 20, 2013

3 Biggest Headaches for Real Estate if Government Defaults

Impact on overall economy likely to be felt not with a bang but a whimper, at least at first

If House and Senate leaders can’t work out even a temporary solution to the debt-ceiling crisis by Thursday’s deadline, the impact on the overall economy is likely to be felt not with a bang but a whimper, at least at first.

As Congress dickers, there are many strategies to delay the impacts of a government default.

The government can prioritize payments, delaying defaults on Treasurys, and banks will likely be willing to advance funds to many companies and even citizens that are owed money by the government as the standoff continues, CNBC’s John Carney reports.

JPMorgan Chase, for one, says it’s willing to fund as much as $8 billion in government benefits that it processes every week for clients.

But the impacts to housing markets — already limping from the government shutdown that preceded the current crisis — could be more immediate.

Among the top concerns:

1. Homebuyer sentiment

In a climate of uncertainty, would-be homebuyers are likely to keep shopping, but wait to head to the closing table until it becomes clear that the debt-ceiling showdown isn’t snowballing into the worst-case scenario — another financial market meltdown on a 2008 scale. Consumer confidence was already at a nine-month low in October, in part because of worries about the budget impasse.

“So far, for me, it has been stressful having a closing with a farm loan being delayed till Lord knows when,” said Angie Scarborough, an agent with McGraw Realtors in Broken Arrow, Okla. “Just trying to keep both buyer and seller interested in keeping it held together and not having answers is a challenge. Meanwhile, if not for cash investors, I would be job hunting.”

2. Mortgages, mortgages, who needs a mortgage?

The government shutdown has already hindered mortgage lenders’ ability to get records they need to verify borrower income from the IRS and the Social Security Administration. Banks have come up with “workarounds,” including following the example of Fannie Mae and Freddie Mac in requiring IRS verification of income only when borrowers finance multiple properties, CBS Moneywatch reports.

FHA has put nearly half of its workers on leave during the shutdown, but loan applications by owner-occupants can still be routed through automated underwriting systems.

The big question is, with so many mortgages relying on some kind of government backing, what happens to secondary mortgage markets in the event that the debt ceiling is reached?

Although rates on some adjustable-rate mortgage (ARM) loans are tied directly to Treasury yields –which could rise sharply in the event of a default — fixed-rate mortgages will have some cushion.

That’s because despite having required billions in bailout assistance during the downturn, Fannie Mae and Freddie Mac are now generating surplus revenues from guarantee fees they charge lenders, and have been unaffected by the shutdown.

Investors who fund most mortgage loans by purchasing mortgage-backed securities backed by Fannie, Freddie and Ginnie Mae (which securitizes loans insured by the FHA) may expect to see better returns on their money, but are unlikely to flee secondary mortgage markets altogether.

John Lonski, chief economist with the capital markets group at Moody’s Analytics, estimates that if the current 1.53 percent spread between 30-year fixed-rate mortgages and 10-year Treasurys grows to 2.8 percent, rates on 30-year mortgages would be at least 5.5 percent, Marketwatch reports.

3. It’s the economy, stupid

The long-term impacts of a government default are hotly debated, with some conservatives claiming the potential economic harm has been overstated in order to pressure Republican House members from backing down from their demands.

An analysis by Reuters concludes that many people would not notice much right away if the government hits the $16.7 trillion debt ceiling on Thursday.

“The 17th will come, the lights will still be on and everything will look normal for 99 percent of Americans,” budget expert Steve Bell with the Bipartisan Policy Center in Washington, D.C., told Reuters.

The government would start by slashing spending by about a third, which would quickly have noticeable impacts on the economy.

One of the first milestones of serious concern is a $12 billion payment due Oct. 22 to the Social Security pension program. If the government missed debt payments due on Oct. 24 or Oct. 31, “there would be a greater risk of a financial crisis because the value of U.S. government debt could be called into question,” Reuters said.

Forecasting firm Macroeconomic Advisers estimates that the combination of government spending cuts and a severe credit crunch could lead to 3 million layoffs, pushing the jobless rate to close to 9 percent.

Source: Inman News, October 15, 2013

How Has DC Shutdown Really Affected The Mortgage Market?

Lenders have had three days to digest Tuesday's partial Federal government shutdown, and while loan processing has been affected, the impact has not been as severe as originators feared or as has been reported elsewhere. While some loan types at some lenders are at a standstill, they are the exception.

Government-insured loans (FHA, VA, USDA) were naturally at the most risk, but the two biggest agencies are conducting business as usual. "FHA Connection" (the portal through which all FHA loans must pass) is operable; case numbers can be obtained and appraisals can be ordered. VA lending similarly continues to operate as normal. That leaves the USDA as the only agency unable to approve or process loans as the "GUS" underwriting system is down.

There are government-related considerations even for loans not insured by a government agency. For instance, federal flood insurance cannot be obtained due to FEMA closing, so purchase loans in flood zones are delayed. On the borrower's side of the equation, government employees may face extra hurdles in verifying income and employment, though most lenders have set up workarounds.

Even those not employed by the government may still receive income from Social Security. Borrowers needing to acquire copies of their awards letters will have difficulty as the Social Security Administration has greatly reduced their staff. In some cases, lenders must obtain confirmation of their clients' Social Security numbers from the SSA, and closings will be delayed in those cases.

Perhaps the biggest issue lenders face is the inability to obtain tax return verifications (TRV's) from the IRS to document the accuracy of borrowers' W2's and tax returns. Many lenders are allowing loans to be approved and closed without TRV's, which will still have to be processed before those loans can be sent to investors after closing. IRS Form 4506-T (request for tax transcript) is still required to be in the file in most cases, and different lenders have different policies informing how it will be handled after the shutdown ends.

Overall, the impact on mortgage processing and closings has been minimal to date, but jumbo loans and self employed borrowers (or others with complex income tax returns) may find lenders unwilling to close their loans without IRS verification of their income.


While agents, buyers, and sellers can breathe a sigh of relief in most cases, it remains prudent for borrowers to verify any impact on their specific scenario with their loan officer.

Source: Ted Rood, Mortgage News Daily , Oct 4, 2013

Cash Sales Jump to 45 percent in August

Distressed homes accounted for 25 percent of residential home sales in August, up 2 percentage points from July.  RealtyTrac, in its August U.S. Residential and Foreclosure Sales Report, said that short sales and sales of bank-owned properties (REO) each rose one point from their July numbers to 15 percent and 10 percent respectively. 

The big news, however, was the growing level of all-cash sales which are rapidly approaching half of all residential real estate transactions.  Those sales rose to a 45 percent share in August, up from 39 percent in July and 30 percent in August 2012.   The percentage of cash sales was even higher in some metropolitan areas such as Miami (69 percent), Detroit (68 percent), Las Vegas (66 percent), Jacksonville, Florida (65 percent), and Tampa (64 percent).

The numbers of institutional investors, those who have purchased at least 10 properties in the last 12 months, are also increasing and accounted for 10 percent of all sales in August compared to 9 percent both in July and one year earlier.  Memphis, Jacksonville, and Atlanta appear particularly attractive to these large investors with those purchases representing respectively 31, 29, and 22 percent of local sales.

RealtyTrac said homes (including single-family residences, condos, and townhomes) sold at a seasonally adjusted annual rate of 5.6 million in August, up 2 percent from 5.5 million in July and 12 percent higher than the 5.0 million pace in August 2012. 

The national median sales price in August was $175,000, up 3 percent from the previous month and up 6 percent from a year ago.  The company said this marked the 17^th consecutive month of annual price increases.  Distressed property sold at a median price of $116,000, 1 percent higher than in July but down 3 percent from August 2012.  Distressed home sales including REO and short sales have now seen year-over-year median prices decline for six straight months.

"Seven years after the housing bubble burst, U.S. home prices are clearly on the rise again, up 23 percent from the bottom in March 2012 although still 26 below the peak of the housing price bubble in August 2006," said Daren Blomquist, vice president at RealtyTrac. "This recovery in home prices and sale volume continues to be driven in large part by cash buyers and institutional investors, as evidenced by the increasing share of sales represented by those two categories in August."

Sales volume increased from the previous month in 39 out of the 42 states tracked in the report and was up from a year ago in 37 states, including Texas, (31 percent), Illinois (29 percent), and Pennsylvania (28 percent), Virginia (up 26 percent), and Florida (up 22 percent). 

Notable exceptions where sales volume decreased from a year ago included California (-17 percent), Arizona (-12 percent), and Nevada (-6 percent)

States with biggest annual increases in median prices include California (32 percent), Nevada (26 percent), Georgia (21 percent), Arizona (20 percent) and New York (19 percent).

Source: Mortgage News Daily, September 26, 2013

Trulia Report Finds Its Still Cheaper to Buy a Home Than to Rent

Trulia has released its Summer 2013 Rent vs. Buy Report, revealing whether buying a home is more affordable than renting in America’s 100 largest metropolitan areas. Looking at homes for sale and for rent on Trulia between June 1 and Aug.31, 2013, this study compares the average cost of renting and owning for all homes on the market in a metro area, factoring in all cost components including transaction costs, taxes, and opportunity costs.

In the last year, the mortgage rate for a 30-year fixed-rate loan rose from 3.75 percent to 4.80 percent, raising the cost of buying a home relative to renting. Homeownership is now 35 percent cheaper than renting nationally, down from being 45 percent cheaper one year ago. Yet despite their current upward climb, mortgage rates will not tip the housing market nationally in favor of renting over buying until rates hit 10.5 percent nationally, given current home prices and rents.

While homeownership is still more affordable than renting in all of the 100 largest metros, rising mortgage rates may soon turn the tide. Buying a home is now less than 10 percent cheaper than renting in San Jose and San Francisco—a dramatic shift from being 31 percent and 28 percent cheaper a year ago, respectively. Even in Detroit, where purchasing a home is a no-brainer, buying has narrowed to being 65 percent cheaper than renting in 2013, versus being 70 percent cheaper in 2012. If rates keep rising and current rents and prices remain flat, San Jose will become the first housing market to tip in favor of renting once mortgage rates hit 5.2 percent.

“While it’s hard to believe after the recent spike in mortgage rates, it’s still more than one-third cheaper to buy a home than to rent,” said Jed Kolko, Trulia’s chief economist. “Recent mortgage rate and home price increases have made buying significantly more expensive than last year, but not enough to tip the math in favor of renting. This is because rates remain well below historical norms, and prices are still slightly undervalued, too.”




Source: Trulia, September 20, 2013

Recovery Driven by Cash Buyers, Investors

The median sale price for a distressed residential property was $116,000, up one percent from a month ago but down three percent from a year ago, according to the August 2013 U.S. Residential Foreclosure and Sales Report released Thursday by RealtyTrac. 

The national median sales price for other residential properties was $175,000, up three percent from last month and up six percent from a year ago, making August the 17th consecutive month that home prices have increased annually.

“Seven years after the housing bubble burst, U.S. home prices are clearly on the rise again, up 23 percent from the bottom in March 2012 although still 26 below the peak of the housing price bubble in August 2006,” said Daren Blomquist, vice president at RealtyTrac. “This recovery in home prices and sale volume continues to be driven in large part by cash buyers and institutional investors, as evidenced by the increasing share of sales represented by those two categories in August.”

Sales volume increased from the previous month in 39 out of the 42 states tracked in the report and was up from a year ago in 37 states, including Texas, (up 31 percent), Illinois (up 29 percent), Pennsylvania (up 28 percent), Virginia (up 26 percent), and Florida (up 22 percent). Notable exceptions where sales volume decreased from a year ago included California (down 17 percent), Arizona (down 12 percent), Nevada (down 6 percent).

The report also noted that among metro areas with a population of 1 million or more, those with the biggest annual increases in median prices included San Francisco (up 35 percent), Sacramento (up 35 percent), Riverside-San Bernardino in Southern California (up 28 percent), Atlanta (up 28 percent), Los Angeles (up 26 percent), Las Vegas (up 26 percent), and Phoenix (up 25 percent).

Source: DS News, September 26, 2013

California Organization Unveils Servicer Scorecard

A federally funded mortgage assistance program in California has announced a monthly online Servicer Scorecard that will evaluate mortgage servicers on such points as the percentage of applications approved, how long it takes to respond to applications, and the total funding issued per program in that particular month.

Keep Your Home California’s (KYHC) Servicer Scorecared is meant to promote awareness of the program, which works to prevent foreclosures and blight.

“We want to help homeowners determine how effective and responsive their mortgage servicer has been to the Keep Your Home California program,” said Claudia Cappio, Executive Director of the California Housing Finance Agency (CHFA), the state agency that oversees KYHC.

“The Servicer Scorecard clearly details how closely their mortgage servicer is working with the program to prevent foreclosures in the state.” Participants in the program program must demonstrate financial hardship such as job loss, cut in pay, divorce, or extraordinary medical bills. The Servicer Scorecard will provide data on both large and small lenders, including Bank of America and Wells Fargo, the two largest lenders in the state.

More than 95 percent of lenders in California participate in at least one of the four programs offered by KYHC. These programs include KYHC’s Unemployed Mortgage Assistance Program, Mortgage Reinstatement Assistance Program, Principal Reduction Program, and Transition Assistance Program.



Source: DSNews, September 24, 2013

Top 5 Reasons Why Californians are Buying Homes in 2013.

Housing Analyst Raises Concerns of Artificial Price Appreciation

As home price appreciation continues at accelerated levels, John Burns Real Estate Consulting is warning clients in certain areas to keep in mind the artificial boosting effect that home “flippers” bring to the market.

“Home price appreciation has been so rampant, particularly in California and Florida, that flippers and get-rich-quick scam artists are flourishing again,” said Chris Cagan, VP at John Burns. “Just as in the mania of 2004-06, flippers make money when the party is raging, but inevitably, someone loses when the party is busted.”

Using anecdotal data for prices paid, repair costs, and selling prices for flipped homes across the nation, Cagan calculated an average net profit of 32 percent, “wildly [surpassing] the reality of the recovering market.”

Part of the growth in flipping activity, he remarked, stems from its growing popularity in the media.

“Flipping has moved beyond a segment of professionals working with undervalued and distressed properties; seminars, tours, and television shows encourage people to invest with flippers or to flip homes themselves. As in the boom of the previous decade, many people see easy money to be made,” he said.

Those perceived gains, however, aren’t realistic in a market in which prices are rising at 10 percent per year. Given the degree to which prices have risen due to house flipping, Cagan says smart investors must recognize the risk in the market.

“Today, the fundamentals for continued price appreciation are very good in the majority of markets,” he said. “However, do not assume that recent successes will continue forever, and be cognizant of the fact that artificial demand—flippers flipping to other flippers is the ultimate artificial demand—can distort your market.”

Source: DS News 9.20.2013

Real Property Report — California, August 2013

Market Activity

August 2013 California single-family residences (SFR) and condominium (CND) sales (distressed and non-distressed) fell 1.8 percent from July but gained 1.5 percent in the past 12 months (y-o-y). A 7.3 percent monthly drop in sales of distressed properties drove the decline in August sales.

  

To get a clearer picture of current real estate sales trends and to eliminate seasonal factors, we compare August 2013 distressed and non-distressed property sales to August sales in prior years. August 2013 sales were the highest since August 2006. Dividing sales into their distressed and non-distressed components, distressed property sales fell 48.6 percent in the past 12 months, while non-distressed property sales jumped 46.6 percent. Despite the decline in distressed property sales, in August distressed properties accounted for 24.0 percent of total sales, which is historically still very high. 

  

We can divide distressed property sales further into short sales and bank REO resales to get a better understanding of underlying trends.  In August, short sales fell 8.0 percent and are down 44.1 in the past 12 months.  Also, bank REO resales are down 5.7 percent for the month and down 56.1 percent for the year.

  

Homeowner Equity

Large numbers of underwater homeowners remain a drag on the California real estate market. In August, 1.2 million (18 percent) of California’s 6.8 million homeowners were moderately to severely underwater while 750,000 (11 percent) were either barely above water (less than 10 percent equity in their homes) or barely underwater.  Since closing costs associated with the sale of a home typically are 6 to 10 percent of a home’s sale price, these homeowners are effectively underwater. Added together, 2.0 million, or 29 percent, of underwater and barely-above-water homeowners are effectively shut out of the California real estate market.  

  

Median Prices

The August median sale price of a California home fell 1.4 percent to $360,000 from $365,000 in July, the first monthly decline since January.  Year-over-year growth in median prices has slowed: the 28.6 percent jump in median sales prices ($360,000 in August 2013 vs. $280,000 in August 2012) was down 1.8 percentage points from the 30.4 percent year-over-year change in July 2013, and down 4.2 percentage points from the 32.8 percent year-over-year change in June 2013.

Rapid changes in the mix of distressed and non-distressed property sales from 2012 to 2013 continue to influence the year-over-year change in median prices. In August 2012, distressed property sales accounted for 47.4 percent of sales.  By August 2013, distressed property sales had fallen to 24.0 percent of sales. 

The following graph highlights median sales price trends from August 2001 to August 2013.   Aggregate single-family home median sales prices are shown in blue, and distressed and non-distressed median prices are shown in red and green, respectively. 

  

When we compute year-over-year growth in median prices for the individual components of aggregate sales — distressed and non-distressed properties — we find that since June,  growth in the median prices of both components has slowed considerably on a year-ago basis.

  

Note: The May 2010 spike in the y-o-y growth of distressed property median prices was due to lack of distressed property inventory during the 2009 and 2010 robo-signing scandal.

Cash Sales

In August 2013, cash sales represented 24.0 percent of total sales, down 2.1 percentage points from 26.1 percent in July. Taking a longer-term view, cash sales as a percent of total sales oscillated between 28 percent and 31 percent from January 2012 through January 2013.  They peaked at 33.0 percent in February 2013 and have been below 28 percent since May 2013.  From a historic perspective, cash sales remain high and are an important part of the real estate marketplace even though they are trending lower now.

 

Investor (LLC and LP) Purchases

August 2013 investor purchases, defined as a market or third party purchase at a trustee sale by a limited liability corporation (LLC) or a limited partnership (LP), fell 13.4 percent from July. Investor market purchases declined 4.7 percent and investor-third party purchases sank 32.8 percent for the month.  In general, investor purchases have been trending lower since late last year.   Investor market purchases have fallen 21.6 percent since peaking in December 2012, while investor trustee-third party purchases are down 72.7 percent since October 2012.

  

 

Foreclosures

August foreclosure sales fell 5.5 percent from July. Splitting August foreclosure sales into their respective components — Sold to Third Party and Back to Bank (REO) — Sold to Third Party sales fell 19.7 percent in August while REOs surged 7.2 percent.  Beginning in the latter part of July, several of the largest banks resumed foreclosure sales following a temporary pause due to an Office of the Comptroller of the Currency (OCC) guidance letter  that specified minimum standards for handling borrower files subject to foreclosure.  Over the past 12 months, Sold to Third Party and REO sales are down 69.4 percent and 72.3 percent, respectively.  Since May, both Notices of Trustee Sale and Foreclosure Sales appear to have bottomed and are trending sideways.

  

Madeline’s Take – Director of Economic Research, PropertyRadar

What caught my eye this month is both August sales and median prices fell simultaneously for the first time since January. After a 12.0 percent pop in July, August sales fell 1.8 percent as the California real estate market digested a 100 basis point increase in mortgage interest rates in mid-June.  The decline in August sales caused the nearly uninterrupted 20-month increase in median home prices to finally take a breather.   

This will be an interesting trend to watch.  The combination of the rapid increase in mortgage interest rates and decline in sales, primarily due to the decline in distressed property sales, cash sales and investor purchases, will likely result in decreased demand.  The decrease in demand, in turn, will likely depress prices and cause an increase in inventory. 

Assuming interest rates don’t rise much further, the increase in inventory will be welcome news for the California real estate market, which has been challenged by an acute shortage of inventory for much of the past year.  Many potential homebuyers looking to finance their home purchases have been shut out of the market due to lopsided bidding wars against cash buyers.

While mortgage interest rates have jumped in recent weeks, we doubt they will rise much further because the Federal Reserve is keenly aware of the importance of the housing market to an ongoing economic recovery.  I believe the Fed is not likely to remove its support from the housing market anytime soon.  Mortgage interest rates are still low by historic standards.  Homebuyers with solid incomes and good credit should have an easier time finding and purchasing a home.

Addendum to Madeline’s Take – 9/18/2013:

The Federal Reserve’s decision to maintain current levels of stimulus is, of course, great news for the housing market. Within seconds of the Fed’s announcement, yields on the 10-year Treasury note fell 10 basis points to 2.75% and will likely trend lower. Mortgage interest rates are sure to follow.

With the cloud of uncertainty gone, we believe the recent volatility in the mortgage interest rate market will likely retreat until sometime next year when talk of tapering will likely return.

In our opinion, the Fed’s are keenly aware of the importance of the housing market to the economic recovery. For that reason, we doubt the Fed’s will consider reducing support anytime soon.

Sean’s Take – Founder/CEO, PropertyRadar

The recent interest rate hikes should result in price declines. Homebuyers have always bought as much home as their banker told them they could afford – and they can now afford 10 percent less than they could before the rate increases. That won’t happen quickly. Sellers, unlike buyers, tend not to believe that such a correction is necessary, and therefore do not drop prices to reflect what buyers can now afford. They are buoyed by mistaken analysis that because both interest rates and prices rose in the 80′s, rising rates don’t mean lower prices. But those were different times. Then we had high inflation, which included wage inflation, allowing buyers to digest both the rise in rates and price. That simply isn’t true today. The next few months will be fascinating to watch. Will prices correct to reflect the new rates, I doubt it. More likely we will see slower sales and more inventory.

Real Property Report Methodology

California real estate data presented by PropertyRadar, including analysis, charts and graphs, is based upon public county records and daily trustee sale (foreclosure auction) results. Items are reported as of the date the event occurred or was recorded with the California county. In the event a county has not reported complete data by publication date, we may estimate the missing data, though only if said data is believed to be 10 percent or less of all reported data.

Source: PropertyRadar, September 17, 2013

Single-Family Starts Save the Day

Housing starts rose 0.9% in August pushed by a solid 7% increase in single-family starts and tempered by an 11% fall in multifamily starts. 

The single-family increase was broad; all four census regions showed increases ranging from 17.5% in the West to 2.3% in the South. Monthly multifamily starts have saw-toothed up and down for several months with four up months and four down months in 2013.

Housing permits demonstrated the same signal with single-family permits up 3% nationally and up or unchanged in every region. August single-family permits at 627,000 are the highest since May 2008. Similar to starts, multifamily permits were down 15.7% to an annual level of 291,000. The three month moving average, a more stable measure of multifamily, has remained above 300,000 since the middle of last year.

The solid single-family report provides additional evidence of the slow but steady improvement in single-family owner-occupied construction that begin in earnest in early 2012. The seasonally-adjusted construction rate increased 36% since January 2012. 

Even with the steady rise, single-family starts remain at less than half a normal rate of 1.4 to 1.5 million per year. The broad increase across four regions in permits and starts is a solid signal that builders do see continued improvement. NAHB is forecasting a 17% increase in single-family construction in 2013 over 2012 and a more robust 31% increase in 2014.

Source: NAHB, September 18, 2013

Number of Underwater Homeowners Down 42%

Home prices are rising, more underwater home owners are regaining equity, and home sales are on the rise, according to the Obama Housing Scorecard, released each month by the U.S. Department of Housing and Urban Development. 

The August report showed that home prices continue to make strong gains while the number of underwater home owners has dropped by 42 percent since the beginning of 2012. The number of home owners who owe more on their mortgage than it is currently worth has dropped from 12.1 million to 7.1 million as of the second quarter of 2013. Home sales—for existing homes and new homes—continue to rebound as well. 

However, the report also stikes a cautious note, underscoring the fact that housing market hasn’t returned to normal quite yet.

“As we regain stability in our housing markets, it is important to remember that we still have a long way to go in making sure that our housing finance system is strong for future generations,” says Kurt Usowski, HUD deputy assistant secretary for economic affairs. 

The report notes that more than 1.7 million home owner assistance actions have taken place through the administration’s Making Home Affordable Program, including loan modifications and other foreclosure-mitigation efforts. But the administration continues to press mortgage servicers to improve their processes in helping struggling home owners, such as through better identification of home owners who could be helped through the program as well as improving upon the timeliness, accuracy, and detail of servicers communications with home owners. 

“While there is significant progress, there is still more improvement needed in [mortgage] servicer behavior,” says Tim Massad, Treasury assistant secretary for financial stability. “And while the housing market has recovered substantially, there are still home owners struggling to avoid foreclosure and it is vital that we continue to try to help them.” 

Source: DS News, September 16, 2013

What's Killing the US Housing Recovery?

Don't believe the hype about rising interest rates smothering housing market improvement. Homes are simply unaffordable

Picture it: a hopeful young couple wants to buy a house. They've been reading stories about a housing recovery, and interest rates are low. They start their search in the late spring. Things start to turn over the summer: as interest rates on 30-year mortgages suddenly rise to 3.5%, 3.7% and then 4%, they start to get discouraged. Eventually, they walk away and keep looking. The housing recovery dies as examples like this happen all over the country. Banks start laying off mortgage professionals, grousing all the time that rising rates are ruining their profits.

Some version of this narrative has been playing out in the mortgage coverage of many major newspapers.

There's only one flaw: none of that is happening.

Rising interest rates are not wrecking the housing recovery; what's wrecking the recovery is that house prices are rising faster than the ability of people to afford them. Maybe we thought we could cheat history, and that a housing recovery would bring about an economic recovery. That can't happen. The housing recovery can't start until the economic recovery begins.

Unfortunately, the economic recovery is overblown; in fact, the economy is stagnant, and there's no evidence of any progress despite years of stimulus by the Federal Reserve.

Similarly, the housing recovery was an illusion: the best housing stock has gone to large private investors, not individual homeowners.

So let's look at why the housing recovery is weak.

You can forget the idea that it's somehow due to higher interest rates. Rates are historically low. In 2003 through 2006, when the housing market was booming, the interest rate on mortgages over 30 years was around 6% or even higher, and that never hurt buying. That's because at the same time, incomes were also rising, after adjusting for inflation. The year at the height of the housing bubble, 2006, was also a peak for income growth. By comparison, look at this chart to see how interest rates are correlated to housing bubbles: it shows that they aren't, really.

So, if interest rates are still at rock bottom in historical terms, we know that "rising" mortgage rates are probably not a big enough deal to hurt the housing recovery.

So what is?

In a nutshell, what's hurting the housing recovery is that there aren't enough houses to buy, and those that are available are too expensive.

First, the supply of affordable homes has diminished. In the aftermath of the housing crash, one-third of all home sales were distressed homes, and those houses tend to be sold for affordably low prices by banks.

But, as home prices have risen, there is evidence that banks and lenders are not selling those foreclosed houses and instead holding on to some of them to sell for a higher price later. They're also not selling them now because flooding the market would result in low sale prices – and those lenders want to get high prices.

That strategy by lenders seems to be working. House prices have rocketed in the past year, rising too fast for buyers to keep up, even with a 30-year mortgage. In July 2012, home prices were still falling from the housing bust. In the past year, they have rocketed up 12%.

At the same time, rental prices have also zoomed up, which is perhaps why mortgage applications seemed to rise earlier this year: a high rent will make people think about buying a home instead.

But neither renting nor buying looks great any more at these prices, because people still don't have much money.

Personal incomes have collapsed since the recession, meaning households – many still struggling with heavy debt – can't afford the sudden rise in house prices and are not applying for mortgages any more. Anyone who manages to buy a house for the first time right now is not feeling rich: the National Association of Realtors found recently that 42% of first-time buyers have to make sacrifices to afford a new home.

This issue of home prices is a huge factor in why there's no actual housing recovery.

Affordability and home ownership are far more closely correlated than interest rates and home ownership. Interest rates may make mortgages more expensive, but they don't affect the underlying price. That price is what drives people away.

The low demand for overpriced houses may be why banks are laying off mortgage professionals. Reuters, Bloomberg, the Los Angeles Times, and, most recently, the Wall Street Journal have all written stories about the layoffs in mortgage departments. They attribute those layoffs to rising rates. That's not the whole story, however.

Laying off mortgage professionals is, at this point, an ancient trend – one that precedes rising interest rates by months and years. Demand is low, and when demand is low, banks lay off people. It has happened every year since 2008, and continued into 2011, after the crisis.

Earlier this year, Chase said it would lay off mortgage professionals because business was improving as foreclosures fell; now the bank and other rivals are suggesting that they're doing more layoffs because business is bad. They can't have it both ways. The truth is that banks will most likely continue layoffs as they slim down the incredibly bloated infrastructures they built up during the boom years and then during the foreclosure and mortgage-cleanup time of 2009 to the present day.

In order to drum up business, banks are walking down a well-worn and dangerous path. According to Bloomberg, those banks are loosening their mortgage standards, dropping the bar for down payments and income requirements in order to get more customers in the door, as Bloomberg reporters perceptively found this week.

Loosening mortgage standards? That's a fantastic idea; what could possibly go wrong? Except of course, for a replay of the last housing crisis. Weaker underwriting standards help more people get homes, but they also sow the seeds of trouble as unqualified people make their way into the system. Banks still have not proven that they know how to judge the risk of a mortgage, so they turn their spigots either all the way on, giving mortgages to everyone, or all the way off, giving mortgages to almost no one.

John Carney, at CNBC, theorizes that the rising home prices are proof of a bubble. The idea is directionally sound, but has a major flaw: bubbles require mass participation.

There's no bubble right now because many people can't get the homes they want. Paradoxically, that will create less of a bubble even though housing prices are growing at bubble rates.

What this all means is that people are going to stay locked out of the housing market until the economy recovers, they have more money in their pockets, and there's a larger supply of affordable houses. Until then, don't believe the hype about interest rates.

Source:theguardian.com, 13 September 2013