Monthly Archives: June 2015
Pending home sales hit their highest level in over nine years in May, indicating that the strong existing and new home sales announced last week are likely to be repeated again for June and maybe even July activity. The National Association of Realtors® (NAR) said that its Pending Home Sales Index (PHSI) rose 0.9 percent from April’s level of 11.6 to 112.6 in May. The report came in ahead of one survey’s expectations of a 0.6 percent increase, but behind the Reuters poll of 1.2 percent.
The rise in the PHSI put it 10.4 percent higher than in May 2014 and marked its ninth straight year-over-year gain. It is now at its highest point since April 2006 when it hit 113.7.
It was also the fifth straight month-over-month increase and NAR’s chief economist Lawrence Yun said this increases the likelihood the home are heading into their best year since the housing crisis began. “The steady pace of solid job creation seen now for over a year has given the housing market a boost this spring,” said Yun. “It’s very encouraging to now see a broad based recovery with all four major regions showing solid gains from a year ago and new home sales also coming alive.”
The PHSI is a leading indicator based on contract signings for home purchases including single family homes, condos, co-ops, and townhouses. These contracts general result in a sale within 60 days.
Yun does warn that this year’s stronger sales amidst similar housing supply levels from a year ago have caused home prices to rise to an unhealthy and unsustainable pace. “Housing affordability remains a pressing issue with home-price growth increasing around four times the pace of wages,” adds Yun. “Without meaningful gains in new and existing supply, there’s no question the goalpost will move further away for many renters wanting to become homeowners.”
Month-over-month performance was mixed by region but all four areas scored year-over-year growth. The index increased in the Northeast by 6.3 percent for the month and 10.6 percent on an annual basis while the Midwest was down 0.6 percent from April but remained 7.8 percent above the May 2014 level.
Pending home sales in the South decreased 0.8 percent to an index of 127.8 in May but are still 10.6 percent above last May. The index in the West rose 2.2 percent in May to 104.5, and is 13.0 percent above a year ago.
Bloomberg said that solid momentum appears to be building inside of the housing market. “Today’s report points to further strength for the existing home sales report which surged in data posted last week. Housing is getting a boost from the strong jobs market together perhaps with the prospect of rising mortgage rates which may be pushing buyers into the market.”
The May numbers came in above even the highest numbers predicted by analysts in an Econoday survey. Those numbers ranged from 505,000 to 540,000 with a consensus at 525,000.
The May increase was driven primarily by a surge in sales in the Northeast. On a seasonally adjusted annual basis sales there increased 87.5 percent from March but, paradoxically, were 21.1 percent lower than in May 2014. Sales were down month-over-month by 5.7 percent in the Midwest and were 12.0 percent lower than in the previous May. Sales decreased 4.3 percent for the month in the South but were precisely one-third higher than the previous year. The West rose both on a monthly and annual basis by 13.1 percent and 25.5 percent respectively.
The Census/HUD report said there were 206,000 new homes for sale at the end of the reporting period, an estimated 4.5 month supply. Both numbers were essentially unchanged from those in April.
The median sales prices of a new home sold in May was $282,800 and the average price was $337,000. The median and average prices of homes sold in May 2014 were $285,600 and $323,500 respectively.
Coming on top of excellent residential construction news last week the National Association of Realtors® (NAR) said today that sales of existing homes in May were at the highest rate in nearly six years and April sales, originally reported down by more than 3 percent, weren’t hit as hard as first thought. If not for the Homebuyer Tax Credit in 2009, today’s numbers would be the highest in more than 8 years.
Sales of single-family homes, condominiums, townhouses, and coops pushed 5.1 percent above April’s pace to a seasonally adjusted annual rate of 5.35 million units. In addition, the April rate was revised from 5.04 million to 5.09 million units. The surge put the May sales 9.2 percent higher than in May 2014 when the rate was 4.90 million and made the month the 8th consecutive one in which sales were higher on a year-over-year basis.
Perhaps as important as the sales numbers was the increase in first-time homebuyers, from 30 percent to 32 percent of the market. This was the highest share for these buyers since September 2012 and was 5 percentage points higher than in May 2014.
Single-family home sales jumped 5.6 percent to a seasonally adjusted annual rate of 4.73 million in May from 4.48 million in April, and are and now 9.7 percent above the 4.31 million pace a year ago. Existing condominium and co-op sales increased 1.6 percent to a rate of 620,000 units from 610,000 units in April, 5.1 percent above the rate of 590,000 units in May 2014.
Lawrence Yun, NAR chief economist, says May home sales rebounded strongly following April’s decline and are now at their highest pace since the 5.44 million rate in November 2009. “Solid sales gains were seen throughout the country in May as more homeowners listed their home for sale and therefore provided greater choices for buyers,” he said. “However, overall supply still remains tight, homes are selling fast and price growth in many markets continues to teeter at or near double-digit appreciation. Without solid gains in new home construction, prices will likely stay elevated – even with higher mortgage rates above 4 percent.
“The return of first-time buyers in May is an encouraging sign and is the result of multiple factors, including strong job gains among young adults, less expensive mortgage insurance and lenders offering low downpayment programs,” Yun said. “More first-time buyers are expected to enter the market in coming months, but the overall share climbing higher will depend on how fast rates and prices rise.”
The median existing-home price for homes sold in May was $228,700, a 7.9 percent increase from one year earlier and the 39th consecutive month of annual price gains. The median existing single-family home price was $230,300 up 8.6 percent year-over-year and the median existing condo price of $216,400 marked a 1.9 percent annual increase.
The inventory of existing homes for sale at the end of May grew by 3.2 percent from the end of April to 2.29 million homes. This was 1.8 percent more than the 2.25 million available homes in May 2014. Unsold inventory is at a 5.1-month supply at the current sales pace, down from 5.2 months in April.
NAR President Chris Polychro, says Realtors® overwhelmingly support the Consumer Financial Protection Bureau’s proposal of a two-month delay for the implementation of the new Truth in Lending Act and Real Estate Settlement Procedures Act Integrated Disclosure, or TRID, regulation. “NAR has long advocated the need to avoid implementing the new regulation during the peak buying season,” he said. “With interest rates on the rise, many families wanting to buy are looking to lock-in at current rates and move into their new home before the school year starts. Holding off on TRID implementation through the summer helps these buyers avoid any disruption or delays in closings that could develop once the regulation goes into effect.”
All-cash sales were 24 percent of transactions in May for the third straight month and are down considerably from a year ago (32 percent). Individual investors, who account for many cash sales, purchased 14 percent of homes in May, unchanged from last month and down from 16 percent in May 2014. Sixty-seven percent of investors paid cash in May.
Foreclosures made up 7 percent of sales and short sales another 3 percent. It was the third consecutive month that distressed shares had a combined 10 percent share. Foreclosures sold for an average discount of 15 percent below market value in May (20 percent in April), while short sales were also discounted 16 percent (14 percent in April).
Tight inventories kept marketing time down with the typical property taking 40 days to sell in May compared to 39 days in April; the third shortest time since NAR began tracking in May 2011. Short sales were on the market the longest at a median of 131 days in May, while foreclosures sold in 56 days and non-distressed homes took 38 days. Forty-five percent of homes sold in May were on the market for less than a month.
Every region saw increased sales in May compared to April led by the Northeast where existing-home sales jumped 11.3 percent to an annual rate of 690,000, and are now 11.3 percent above a year ago. The median price in the Northeast was $269,000, which is 4.8 percent higher than May 2014.
Sales in the Midwest rose 4.1 percent to an annual rate of 1.27 million in May, 12.4 percent higher than a year earlier. The median price in the Midwest was $181,900, up 9.4 percent from a year ago.
In the South there was a 4.3 percent gain to an annual rate of 2.18 million, 6.9 percent above May 2014. The median price in the South was $198,300, up 8.2 percent from a year ago.
Existing-home sales in the West climbed 4.3 percent month-over-month and 9.0 percent year-over-year to an annual rate of 1.21 million in May. The median price in the West was $324,000, which is 10.2 percent above May 2014.
The report noted that the average 30-year rate on all closed loans fell slightly for the first time since February, from 4.062% to 4.013%. Jonathan Corr, president and CEO of Ellie Mae said that the May share of purchase mortgages did fall below the 66 percent share in May 2014 because the lower mortgage rates last month gave some help to refinancing volumes and share.
The FHA share of loan originations in May was unchanged from April at 24 percent while Conventional originations dipped by 1 percentage point and VA originations increased by that same amount to 63 percent and 10 percent respectively.
The overall closing rate for purchase loans was 68.2 percent, the highest since January and almost 5 percent above the 2014 average. Refinancing loans had a closing rate of 60.1 down from 64.0 percent in April but that rate was still more than 10 percentage points higher than the average for all of 2014. The overall closing rate for loans originated in May was 64.0 percent.
The average closing period for all loans rose from 45 to 46 days. Refinance loans took an average of 49 days to close, six days longer than purchase loans.
FICO scores for a loan closed in May averaged 730, up from 726 for all of 2014. The loan-to-value (LTV) ratio was 81percent compared to 82 percent for 2014, and the debt-to-income (DTI) ratio averaged 24/37, a number that has remained virtually unchanged for over a year.
Ellie Mae’s report mines data from mortgage applications that are initiated by lenders through its mortgage management software. In 2014, approximately 3.7 million loan applications, or 66 percent of all applications were included in Ellie Mae’s database.
Mortgage rates moved only slightly lower today, belying the amount of positive market movement in the mortgage-backed-securities that normally influence lender pricing. Indeed, MBS continue to influence rate sheets more than anything else, but there are always other considerations. These “other considerations” tend not to change very much, day to day, thus leaving MBS as the undisputed king of mortgage rate change motivation.
One of the other considerations is the extent to which lenders expect volatility on the near term horizon. If markets might be exceptionally volatile some time soon, lenders might be more conservative with pricing because volatility costs lenders more to deal with. It’s fairly common to see this sort of conservative stance heading into events that are known hubs for volatility. Tomorrow’s Fed announcement (and press conference) are two such events.
Even with a bit of a conservative stance, many lenders still saw fit to improve rate sheets in the middle of the day as underlying markets improved. Some lenders even lowered rates more than once. But before you get too excited, understand that we’re talking about very small adjustments to the closing costs associated with prevailing rates, and NOT the actual contract rates themselves. In other words, if you were being quoted 4.125% yesterday, you would almost certainly still be quoted 4.125% today, but with slightly lower closing costs or higher lender credit, as the case may be.
When it comes to tomorrow, take a cue from lenders and assume that things can go either way, and forcefully so. There’s a lot at stake in the coming months with respect to Fed policy and rates. While the Fed’s rate hike doesn’t directly affect mortgage rates, it can and will have an immediate, indirect effect on the broader bond market. We’re not expecting the Fed to hike tomorrow, but even if Yellen merely says something that seems to confirm a September rate hike likelihood, it will be a big deal. If you don’t lock your loan before the Fed (2pm eastern, tomorrow), don’t expect to be able to efficiently lock it after 2pm if rates are rising unless you already have a game-plan with your lender.
Builder’s demonstrated the highest confidence in the market for newly built homes in nearly a year this month as the Housing Market Index (HMI) published by the National Association of Home Builders and Wells Fargo Bank sprung to a five point gain. Two of the HMI’s component indices reached the highest levels in nearly a decade.
The HMI rose to 59, the highest reading since September 2014 in June as builders, according to NAHB Chairman Tom Woods, reported “more serious and committed buyers at their job sites.” This is reflected, Woods said “in recent government data showing that new-home sales and single-family construction are gaining momentum.”
“The HMI indices measuring current and future sales expectations are at their highest levels since the last quarter of 2005, indicating a growing optimism among builders that housing will continue to strengthen in the months ahead,” said NAHB Chief Economist David Crowe. “At the same time, builders remain sensitive to consumers’ ability to buy a new home.”
The HMI is derived from a monthly survey conducted by NAHB among its builder members to measure their perceptions of current single-family home sales and their expectations for those sales over the upcoming six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor. NAHB has conducted the survey for over 30 years.
All three components of the composite index posted healthy gains in June. The component gauging current sales conditions jumped seven points to 65 and the index charting sales expectations in the next six months increased six points to 69. These were the highest readings for the components since November and October 2005 respectively. The component measuring buyer traffic rose five points to 44, tied with January for the highest index reading this year.
Looking at the three-month moving averages for regional HMI scores, the South and Northeast each rose three points to 60 and 44, respectively. The West posted a two-point gain to 57 while the Midwest dropped by one point to 54.
Mortgage rates continued pressing into new highs for 2015. Most lenders are now quoting conventional 30yr fixed rates 4.25% on top tier scenarios. While this was already the case for many lenders yesterday, today’s losses would then be seen in the form of higher closing costs. In terms of the “effective rate” (which factors in the associated upfront costs), today’s rate sheets most closely resemble those seen in early October 2014.
As for reasons, things remain frustratingly opaque if you’re looking for short term cause and effect. The problem we’re dealing with is exceptionally broad and long-lasting. Thankfully it’s not too complex. Investors gorged on European bonds throughout 2014 and early 2015, bringing rates to all-time lows and causing other rates markets (like ours) to experience some benefit as well. Now, investors are concerned not only that the feeding frenzy may have gone a bit too far, but also that it is just plain “over.” That leaves us with 2 problems. If the long term move is over, that would obviously imply higher rates. But if the long term move was also overdone, that would imply a sharp snap back toward higher rates.
As of right now, we’re still barely able to hold on to the notion that we’re only dealing with the “overdone” part, though the question of a long term bounce toward higher rates remains up for debate. Don’t assume this will change until it definitively does.
It continues to be clear that the foreclosure crisis is winding down while ongoing elevated levels of mortgage distress mean it could be a long time before it actually ends. CoreLogic’s April 2015 National Foreclosure Report shows dramatic year-over-year declines in both delinquencies and completed foreclosures and a foreclosure inventory that has shrunk to less than a third of its peak level. It also shows these statistics remain at levels far above historic “norms.”
The company said that there were 40,000 completed foreclosures nationwide in April compared to 50,000 in April 2014, a decline of 19.8 percent year-over-year and down 65.8 percent from the foreclosure peak in September 2010.
The rate of completed foreclosures in April was nearly identical to the previous month. Both were reported at 40,000 although CoreLogic said there was a month-over-month decline of 1.1 percent. As a basis of comparison completed foreclosures averaged 21,000 per month nationwide between 2000 and 2006.
Since the financial crisis began in September 2008, there have been approximately 5.7 million homes lost to foreclosure nationwide and since homeownership rates peaked in the second quarter of 2004 there have been approximately 7.8 million foreclosures.
The five states with the highest number of completed foreclosures for the 12 months ending in April 2015 were: Florida (106,000), Michigan (49,000), Texas (33,000), Ohio (28,000) and Georgia (27,000). These five states accounted for almost half of all completed foreclosures nationally.
As of April 2015, the national foreclosure inventory, that is homes in the process of foreclosure, stood at approximately 521,000, or 1.4 percent, of all homes with a mortgage. In April 2014 there were 694,000 homes in the inventory, a rate of 1.8 percent. The April inventory was down by 2.2 percent from March 2015 and at a rate of 1.4 percent is back to early 2008 levels.
Four states and the District of Columbia had the highest foreclosure inventory as a percentage of all mortgaged homes: New Jersey (5.1 percent), New York (3.8 percent), Florida (3.1 percent), Hawaii (2.6 percent) and the District of Columbia (2.5 percent). The District of Columbia was also counted among the five locations with the lowest number of completed foreclosures. Black Knight Financial Services reported yesterday that, at the current rate, it could take 43 years to clear the District’s backlog of distressed mortgages.
CoreLogic also reports that the number of mortgages in serious delinquency (defined as 90 days or more past due, including those loans in foreclosure or REO) declined by 22.1 percent from April 2014 to April 2015, with 1.4 million mortgages, or 3.6 percent of the total, falling into this category. This is the lowest serious delinquency rate since February 2008. On a month-over-month basis, the number of seriously delinquent mortgages declined by 3 percent.
“By mid-2011, after the Great Recession and at the trough of the house-price collapse, more than 1.5 million homes were in the foreclosure pipeline,” said Frank Nothaft, chief economist for CoreLogic. “Employment recovery, foreclosure alternatives, and home-value gains have worked to reduce this inventory. At CoreLogic, we found that April’s foreclosure inventory was down 25 percent from a year ago, falling to one-third the mid-2011 level.”
“Despite a slow and steady improvement in most housing market fundamentals, too many families remain in default of their mortgage obligations,” said Anand Nallathambi, president and CEO of CoreLogic. “The percent of homeowners with a mortgage that have missed three-or-more monthly payments or are in foreclosure proceedings dropped to 3.6 percent in our April data; while well below the record peak of nearly 9 percent and the lowest in more than seven years, it remains about double the pre-2007 rate.”
Mortgage profits soared in the first quarter of 2015 the Mortgage Bankers Association (MBA) said this week, nearly doubling the per loan net produced in the fourth quarter of 2014. Independent mortgage banks and subsidiaries of chartered banks reported increased refinancing volume and secondary marketing gains allowed them to compensate for increased origination costs.
According to MBA’s Quarterly Mortgage Bankers Performance Report, banks had a net gain of $1,447 on each loan they originated during the quarter. In the previous period they reported a gain of $744 per loan.
“Net production profits among independent mortgage bankers nearly doubled from the fourth quarter of 2014 and secondary marketing gains improved by 31 basis points over the fourth quarter, based largely on the increase in refinancing volume in the first quarter of 2015,” said MBA Vice President of Industry Analysis Marina Walsh. “However, total production operating expenses per loan remained a challenge, rising to $7,195 per loan in the first quarter of 2015, from $7,000 per loan in the fourth quarter of 2014.”
Walsh continued: “In fact, origination costs in the first quarter are elevated compared to quarters with similar production volume within the past few years.”
A total of 359 companies reported production data to MBA. Seventy-three percent were independent mortgage companies, the remainder were subsidiaries and other non-depository institutions. Including all business lines, 88 percent of the firms in the study posted pre-tax net financial profits in the first quarter of 2015, up from 74 percent in the fourth quarter of 2014.
Respondents reported an average production volume of $473 million in the first quarter compared to $417 million per company in the fourth quarter of 2014. Loan volume averaged 1,917 loans, up from 1,769 the previous quarter.
Per loan production expenses – commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations – increased, as Walsh pointed out, from $7,000 in the fourth quarter to $7,195. Personnel expenses averaged $4,675 per loan compared to $4,428.
The “net cost to originate” was $5,597 per loan compared to $5,283 in the fourth quarter. This figure includes all production operating expenses and commissions, minus all fee income, but excludes secondary marketing gains, capitalized servicing, servicing released premiums, and warehouse interest spread. Secondary marketing income increased to 297 basis points from 266 basis points.
The average production profit was 60 basis points (bps) in the first quarter, compared to an average net production profit of 32 bps in the fourth quarter of 2014.
Mortgage rates moved noticeably higher to begin the month, bringing the average conventional 30yr fixed quote back to 4.0% after briefly hitting 3.875% on Friday. Today’s move higher follows 7 consecutive days where rates either held steady or moved lower. As we discussed last week, we were highly likely to see at least a temporary pull back some time soon. The rationale was that any time financial markets do one thing for several consecutive days, odds increase exponentially that they’ll do something different soon.
That’s all well and good, but the logic only applies to the initial pull back. It doesn’t do as much to speak to the next move. From what we’ve seen today with respect to the recent range in rates, there is still plenty of reason to be cautious. That said, if last week’s positivity had carried over into this week, it would still make sense to remain cautious unless we were seeing a substantial improvement. There are too many risky events on the near term horizon capable of causing significant movement. These events can either help or hurt, but the size of the potential movement is too big for most borrowers to want to risk floating through them. These events begin in earnest on Wednesday.