Recovery Persists Despite Interest Rate Hikes

A recent survey conducted by Fannie Mae reveals that a clear majority of prospective homebuyers still believe it’s a good time to buy a home despite increasing interest rates on mortgages. A majority of people surveyed also believe home prices will continue to rise, which supports experts’ theories that most people are aware that the market is still good for buying when compared to previous years. Historical data reflect similar patterns regarding shifts in interest rates, which may also mean that interest rates don’t factor in as heavily as other indicators when people are considering a home purchase. 

Buying a home has become more expensive because of rising home prices and interest rates, but it appears it would take more to shake the housing recovery.

In Fannie Mae's June National Housing Survey, 72% of the respondents said it was still a good time to buy a home, even though the share of respondents who expected mortgage rates to increase in the next 12 months rose by 11 percentage points to 57%, the highest level in the survey's three-year history.

The share of respondents who believe home prices will go up in the next year also hit a survey high of 57%, underlining consumers' confidence in the housing recovery.

"Consumers may recognize that today's still favorable mortgage rates and homeownership affordability levels will recede over time," said Fannie Mae economist Doug Duncan. "Given rising home and rental price expectations and improving personal financial attitudes, more prospective homebuyers may be deciding that now is the time to get off the fence."

Housing and mortgage analysts have also argued that the rise in interest rates, while denting affordability, is unlikely to deter the recovery. In fact, some have concluded that interest rates have only a limited impact on home prices.

In a report released Sunday, KBW analysts look at past behavior of home prices in the U.S. and in the state of California during periods of rising interest rates, starting from the 1980s.

Rising interest rates did not cause a drop in home prices as is commonly feared. In fact, the analysts found that historically rising home prices and rising interest rates went hand-in-hand.

This was because "early in a recovery period for home prices, positive economic growth and increasing demand for housing offset rising financing costs," they wrote.

Interest rates appeared to have a very small impact on home prices. For instance, between January 1993 and January 1995, interest rates moved from about 8% to a little over 9%. Home prices in the U.S. still rose, irrespective of the move in rates. In California, however, home prices declined, as the local economy was still climbing out of recession.

Between 2003 and 2007, similarly, home prices rose in both the U.S. and in California, while interest rates rose. Later, in 2007, prices plummeted during a time of declining interest rates.

"We are not attempting to draw a conclusion that higher mortgage rates support rising home values," the analysts emphasized in their report. "Rather we are suggesting that the direction of mortgage rates has little impact on the direction of home prices, as other factors, such as economic growth and home supply, are likely the key drivers of home price movements."

Indeed, while low interest rates have enabled many people to refinance or purchase homes, they are not the reason behind the rise in home prices. Rates were low for a long time after the bust, yet home prices went nowhere but down until March 2012.

Rather it was the decline in excess supply of homes that kickstarted the housing recovery.

For now, the supply of existing and new homes remains constrained, but it is expected to ease as more sellers list their homes and homebuilders ramp up construction.

This could moderate price gains, especially if mortgage credit standards remain tight, forcing more people to rent.

Source: NuWire Investor

Forecast Points to Steady Price Growth Led by California

When it comes to price appreciation, California markets are expected to continue leading growth over the next year, while certain markets concentrated in the Northeast should see a decline in home values, according to Veros Real Estate Solutions' most recent forecast ending June 1, 2014. The company's forecast covers 969 counties, 324 metro areas, and 13,502 zip codes.

 Source: DS News

Pending Sales at Strongest Pace Since 2006

Pending home sales rose in May to the highest level since late 2006, implying a possible spark as mortgage interest rates began to rise, according to the National Association of REALTORS®.

The Pending Home Sales Index, a forward-looking indicator based on contract signings, increased 6.7 percent to 112.3 in May from a downwardly revised 105.2 in April, and is 12.1 percent above May 2012 when it was 100.2. Contract activity is at its strongest pace since December 2006, when it reached 112.8. Also, pending sales have been above year-ago levels for the past 25 months.

Lawrence Yun, NAR chief economist, said there may be a fence-jumping effect. “Even with limited choices, it appears some of the rise in contract signings could be from buyers wanting to take advantage of current affordability conditions before mortgage interest rates move higher,” he said. “This implies a continuation of double-digit price increases from a year earlier, with a strong push from pent-up demand.”

Regionally, the index went unchaged in the Northeast, but is 14.3 percent above a year ago. In the Midwest, it jumped 10.2 percent to 115.5 in May and is 22.2 percent higher than May 2012. Pending home sales in the South rose 2.8 percent and 16 percent in the West.

Source: NAR

Wells Fargo, Citigroup Halt Foreclosure Sales

Wells Fargo and Citigroup have temporarily halted foreclosure sales in several states, taking precautions after a federal regulator released new guidance on minimum standards for foreclosure sales.

The Office of the Comptroller of the Currency (OCC) recently released the new standards. The OCC’s directive mostly consists of 13 questions banks need to ask themselves before selling a home in foreclosure, such as whether the borrower is protected from foreclosure by bankruptcy or if the borrower is in an active loan modification plan.

JPMorgan had also mostly stopped its foreclosure sales after the OCC’s standards were released, but has since resumed sales.

Wells Fargo, the nation’s largest mortgage originator, has seen a dramatic drop in foreclosure sales while significantly decreasing the number of sales it’s processing. For example, foreclosure sales by Wells Fargo in California, Nevada, Arizona, Oregon, and Washington plummeted from 349 a day in April to less than 10 a day, according to Foreclosure Radar, a real estate monitoring firm based in California.

"Wells Fargo has temporarily postponed certain foreclosure sales while we study the revised guidance from the OCC," a Wells Fargo spokeswoman confirmed for American Banker. Citibank officials also confirmed the reason behind their halt in sales was to carefully review the new guidance.

"The OCC did not direct a slowdown or pausing," says OCC spokesman Bryan Hubbard. "However, if servicers are not certain they are meeting these standards, pausing foreclosures is a responsible and productive step."

Source: “Wells, Citi Halt Most Foreclosure Sales as OCC Ratchets Up Scrutiny,” American Banker (May 17, 2013)

We're Forever Seeing Bubbles

The recent jump in home prices (near record month-over-month and year-over-year increases reported for May by the National Association of Realtors) has led to speculation that the rapid surge in home prices could be the sign of a new housing bubble similar to the one that led to the Great Recession. Is it? The not-so-short answer is, not yet.

Through May the median price of an existing single-family home has risen by double-digits for seven of the last eight months (and in the eighth, the year-over-year increase was 9.4 percent). For comparison’s sake, note that in the run-up to the collapse in 2006, the median price of an existing single-family home rose by double-digits year-over-year for 11 straight months.

An increase in prices itself does not signal a bubble. An unsustainable increase, not supported by other data, however, would. In the run-up to the 2006 collapse, the higher prices—which had been trending up for four years—led to a sharp uptick in construction wholly unsupported by demographics.

Despite the fact we still theoretically have more potential sellers than buyers, which should drive prices down, the inventory of homes listed for sale has remained low. That low inventory, combined with low interest rates keeping affordability high, has driven prices up.

Many analysts contend the current prices are justified by low rates, which keep home affordable even as prices rise. This would suggest that as rates rise, prices will move in the opposite direction, a replay of the post-2006 economy. That’s not though what history tells us. If prices fall in response to higher rates, it would mean market behavior has changed, a phenomenon for which we may not be prepared.

For more...see We're-forever-seeing-bubbles-2013-06-21

Trulia: Asking Prices Accelerate in Least Affordable Housing Markets

Asking prices are rising at an especially fast pace in the least affordable housing markets, according to Trulia. 

Nationally, asking prices increased 9.5 percent year-over-year in May, but in the ten least affordable metros, asking prices spiked 16.3 percent during the same time period.

Trulia also found out of the 100 largest metros, 98 saw asking prices increase over the last year.
Among the least affordable markets, seven were in California. 

Honolulu was found to be the least affordable metro, where 74 percent of monthly household income is used to pay a mortgage. In San Francisco, households spend 55 percent of their monthly wages on their mortgage. 

In the 10 least affordable markets, households spent at least a third of their income towards their mortgage. 

The calculation assumed a 3.8 percent interest rate on a home that is 1800 square feet. 

Jed Kolko, Trulia’s chief economist, gave two reasons for why the gap in affordability matters.

For one, it leads to a migration out of less affordable markets.

“[M]ore people in expensive markets like California will look to relocate to cheaper markets like Texas when the time comes to buy,” he said.

For the full article, see trulia-asking-prices-accelerate-in-least-affordable-housing-markets-2013-06-07

Buying vs Renting in California 2013

Housing Pushes Economy’s Recovery

Fannie Mae’s Economic & Strategic Research Group has announced that the strengthening of the housing market is pushing the economy forward but the country’s growth has yet to reach its full potential. 

While we are currently experiencing a prolonged period of steady economic growth, it is expected that growth will remain below 2.0 percent for the first half of the year, with gradual strengthening in the second half of 2013 and into 2014.

The ongoing recovery in housing has contributed greatly to an economy moving in a positive direction, thanks to home prices, home sales, and homebuilding activity showing signs of long-term improvement. In fact, growth is expected to surpass 2.5 percent in 2014 due to improved conditions in the housing market.

For more info see fanniemae news/2013/

5 Federal Programs Homeowners Should Review for 2013

As homeowners receive their annual property assessments & taxable valuations in the mail, many will see the continued drop in the value of their home. Despite recent reports of declining “underwater” homeowners in the fourth quarter of 2012, there are still many homeowners looking for help.

Property values in many California markets to include, Chino, Chino Hills, Diamond Bar and surrounding areas are starting to see property values creeping up; but, many homeowners are still underwater and owe more than their home is worth.

Information & education is imperative on housing programs that are available to homeowners. Qualifying for one of these programs can mean the difference between losing or staying in their home.

The following is a list federal programs compiled by Greenpath Debt Solutions.

1. HAMP (Home Affordable Modification Program) - Tier 1 & Tier 2
2. HAFA (Home Affordable Foreclosure Altrnatives) - Updates
3. Independent Foreclosure Review Alternative Settlement
4. Fannie Mae Refinancing Incentive
5. Hardest Hit Funds - See http://www.ncsha.org/housing-help

To see the complete article go to http://goo.gl/E0vlR