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Look for value in 2014

Good news for housing, price gains next year are expected to be only about half as strong as in 2013, when sellers stayed on the sidelines. Yes, that’s good news. “For a sustainable recovery you want to see more balance between buyers and sellers,” says David Stiff, chief economist at CoreLogic Case-Shiller, which is forecasting a 6.8% rise in the median home value for 2014.

 

Inventory is already improving. Nationwide, the number of homes for sale in September rose 1.8% vs. a year earlier, according to the National Association of Realtors. That’s the first increase since late 2011. In Los Angeles, Atlanta, and Orlando, inventory was 10% or higher than a year earlier.

 

“It will still be a sellers’ market in 2014, given how far we have before inventory is back to normal,” says Jed Kolko, chief economist at Trulia, noting the supply of homes in September was still about 15% below historical norms. “But it will not be as extreme as 2013,” he says.

 

Buyers will also enjoy an advantage next year as real estate investors are expected to be less of a factor. Why? In an improving market, there are fewer distressed homes, which they covet. According to the Campbell/Inside Mortgage Finance HousingPulse Tracking survey, the investor share of residential home purchases fell from 23% earlier this year to 17% in September. In a more balanced market like this, here’s what you can do to get an edge:

BUYERS

 

Waiting for more inventory can make sense if you have a dream home in mind. But in 2014 there will be a price for delay — 30-year fixed-rate mortgages are forecast to climb from today’s 4.5% to more than 5%.

 

Work with a fast closer. Qualifying for loans is easier now, but speed is another issue. Franklin, Tenn., agent Patty Latham says she will not work with buyers using a particular lender that has missed several deadlines. For speed, Virginia agent Rob Wittman suggests sticking with local lenders with ties to nearby appraisers.

 

 

 

 

Lead with a credible offer. At a time of multiple bids, low-balling isn’t the way to go. “The reality is, sellers don’t have to come back to you with a counter if they’ve got better bids,” Wittman says. Of course, you don’t want to overpay either. Even in markets that are starting to experience bidding wars, such as L.A. and Boston, final sales prices are still typically about 1% below asking. Use that and your agent’s local knowledge and go in with a respectable bid.

 

OWNERS

 

If you like your home and are not in a rush to sell, you have great flexibility. For instance, your rising home equity will make it easier to borrow against the property. That can help pay for deferred maintenance or home renovations you’ve been eyeing for years — which will only add value when you eventually put your home on the market.

 

Remodel within reason. Home-improvement spending is expected to grow by double digits through mid-2014, according to Harvard’s Joint Center for Housing Studies. Atop the wish list: bathroom and kitchen jobs.

 

Keep resale in mind. While the focus was on value at the market lows, today “homes with all the fixings are the ones attracting multiple buyers,” says McLean, Va., real estate broker Jon Wolford. So, yes, you can splurge a bit, but don’t go crazy. Remodeling Magazine’s cost-vs.-value survey found that moderate kitchen remodels ($57,500) recouped 69% of their cost, close to what minor jobs paid back. Over-the-top projects ($111,000), though, recouped less than 60%.

 

Take advantage of low home-equity rates. While 30-year mortgages rose nearly a point this year, rates on home-equity lines of credit have fallen a bit to 5.1%. That’s because HELOCs are tied to short-term rates that the Fed isn’t likely to hike until 2015.

 

If you’ll need to repay your loan over many years, though, go with a fixed-rate home-equity loan. Today’s 6.25% average is about 0.25 points lower than a year ago, as lenders are now more interested in doing deals, says Keith Gumbinger at HSH.com. Credit unions can be the best place to shop for home-equity loans. The average credit union rate is 5.75%.

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Home Prices Rise Overall, but Some Areas Seeing Sharp Declines

Home prices rose again nationally in September Lender Processing Services (LPS) said today, but in many areas, notably a lot of the older mill towns in the Northeast, prices are still declining, in some cases sharply.  LPS’s Home Price Index (HPI) was up 0.2 percent from August to $232,000 and has risen 8.2 percent since the beginning of the year and 9.0 percent since September 2012.

Nationally the HPI has climbed back to within 14.1 percent of the peak level reached in June of 2006 when the index was at $270,000.  In many states however, such as Florida (-35.1 percent) and even, despite its recent unprecedented gains, California (-25.3 percent) prices have far from fully recovered.

LPS derives its data from residential real estate transactions and its own property and loan-level data bases.  The HPI is the result of a repeat sales analysis representing the price of non-distressed properties by taking into account price discounts for bank-owned real estate and short sales.

Five states had increases in their HPI of half a percent or more from August to September, Nevada was up 0.8 percent, Georgia and South Carolina increased by 0.7 percent and both Florida and Illinois were up 0.5 percent.  The largest month-over-month declines were in Connecticut (-0.9 percent), New Hampshire (-0.6 percent), Massachusetts (-0.5 percent) and Colorado and Pennsylvania each of which declined 0.4 percent.

Colorado along with Texas established new peak prices in July but while Texas has gone on to even higher HPI levels and established another peak in September, Colorado has declined every month since.  The state is now down 0.7 percent from its recent peak.

The biggest price gains among metropolitan areas were almost all in the south.  Myrtle Beach, South Carolina gained 1 percentage point in September followed by Charleston South Carolina, Atlanta, and Miami with 9 percent increases.  There were five metro areas that were up 0.8 percent, Naples, Florida, Reno and Las Vegas, Ocean Pines, Maryland; and Key West. Austin, Texas gained 0.6 percent and established a new peak price at $241,000.

The big losers were mostly in New England.  Torrington (-1.0 percent), Bridgeport (-0.9 percent), and Norwich (-0.9 percent), Connecticut were followed by Springfield, Massachusetts and New Haven, down 0.8 percent.  York, Pennsylvania and Kennewick, Washington, down 0.7 percent.   Worcester, Massachusetts and Manchester, New Hampshire each lost 0.6 percent in value from September.  Denver, which had, along with Colorado, set a new peak in July is now off that peak by 0.8 percent after falling half a point in September.

New York Purchase Mortgages Top 60 percent in October

Mortgage loan originations for the purpose of purchasing topped 60 percent in October Ellie Mae said on Wednesday, for the first time since the company began publishing its Origination Insight Report.  Quite naturally the refinancing share was below 40 percent for the first time as well.

 

Purchase mortgages represented 61 percent of all mortgages originated during the month compared to 58 percent in September and 31 percent in October 2012.  Refinancing dropped to 39 percent from 41 percent the previous month and 68 percent a year earlier.  Ellie Mae first began tracking this data in August 2011.

 

Sixty-eight percent of originations were conventional mortgages, down from 70 percent in September and 74 percent in October 2011 while FHA-backed mortgages remained at the 19 percent level where it has been for five of the last six months and where is stood in October 2012 as well.

 

The time to close a loan rose slightly for all mortgages, from 42 days in September to 45 days in October.  The time to close was up 3 percentage points for both purchase and refinance mortgages which increased to 46 and 43 days respectively.

 

The pull-through rate, that is the percentage of applications which close as loans, fell slightly from 52.3 percent in September to 51.4 percent in October.  The closing rate for purchase loans was 56.9 percent, down from 59.6 percent and for refis it was 44.6 percent compared to 45.2 percent.

 

Underwriting standards seem to be easing.  Ellie Mae said that 28 percent of closed loans had an average FICO score of less than 700 compared to 16 percent one year earlier.  The average loan-to-value ratio (LTV) has increased to 81 percent from 78 percent in October 2012 while the average FICO score is down to 732 from 750.  The debt-to-income ratio is now at 25/38 instead of 23/34.

 

Ellie Mae draws its data from a sampling of loan applications that flow thought its proprietary software and loan network.  That volume represents more than 20 percent of all U.S. loan originations.

Foreclosure Improvements Held Back by Judicial States New York Among Highest Percentile

Completed foreclosures in September totaled 51,000 nationwide, down 39 percent from a year earlier when banks repossessed 84,000 homes.   CoreLogic said, in its September National Foreclosure Report, that the number of foreclosures last month was virtually identical to that in August.

By way of comparison, CoreLogic said that in what might be considered a more normal market, the period from 2001 to 2006, there were an average of 21,000 foreclosures completed each month.  The approximately 4.6 million foreclosures completed in the 60 months since the financial crisis began in September 2008 average 76,700 per month.

In September the foreclosure inventory, that is the number of homes in some stage of foreclosure, stood at approximately 902,000, down one third from 1.4 million one year earlier.  The inventory decreased by 3.3 percent from August to September.  The inventory in September represented approximately 2.3 percent of mortgages homes in the U.S., down from 3.2 percent in September 2012.

“The foreclosure inventory continues to decline, now standing at an early 2009 level,” said Mark Fleming, chief economist for CoreLogic. “Just over 900,000 properties remain in the inventory, two thirds of them in judicial states where the foreclosure process is typically slower. Consequently, the pace of overall improvement in the inventory will slow down and distressed assets will cast a long shadow over housing markets in states with judicial foreclosure.”

 

 

“The number of seriously delinquent mortgages continues to drop across the country at a rapid rate with every state showing year-over-year declines in foreclosure inventory,” said Anand Nallathambi, president and CEO of CoreLogic. “We’re not out of the woods yet, but these are encouraging signs for a return to a healthier housing market in the U.S.”

Five states accounted for almost half of all completed foreclosures over the 12 months ended in September.  Florida had 115,000 foreclosures, California 52,000, Texas 43,000, Michigan, 40,000, and Georgia 39,000. The states with the highest foreclosure inventory as a percent of mortgaged homes were Florida (7.4 percent), New Jersey (6.5 percent), New York (4.8 percent), Maine (4.0 percent) and Connecticut (3.7 percent).

The Day Ahead: Several Potential Market Movers; Focal Point is Retail Sales

The Day Ahead: Several Potential Market Movers; Focal Point is Retail Sales

Yesterday

– Extremely light volume; Data mattered very little

– Most trading surrounded the Fed’s daily buying operation

– Pending Home Sales were negative year/year, 1st time in 29 months

– Factoring out homebuyer tax credit, Pending Sales were much much worse

Today

– Expecting a bit more activity due to more robust data offerings

– Focal points on Retail Sales (830am) and Consumer Confidence (10am)

– 5yr Treasury Auction is a supporting actor, but no star

– Bond Markets look “ready to rally” if given a reason

Strategy

From the standpoint of trading levels, yesterday was meaningless.  Both Treasuries and MBS remained inside the ranges set by Friday’s highs and lows.  Data had limited effect and the biggest volume was seen surrounding the Fed’s scheduled Treasury buying operation.  That’s a clear-cut indication of day that may as well not have happened.  Pending Home Sales at least made it worth tuning in (more on that in the “charts” section below).

Today should make up for yesterday’s boredom.  At the very least, it stands a better chance.  Retail Sales is the focal point of the day from a data standpoint with Consumer Confidence helping round out the morning.  As has been the case for several years now, Producer Prices are essentially worthless when it comes to suggesting interest rate directionality.  At this point, it’s going to take a concerted effort across several inflation metrics before anyone cares.  That said, a lot of old dogs still care due to force of habit, but that doesn’t mean they should or you should.   So focus on Retail Sales at 8:30am.

If the beat or miss is big enough at 8:30, that may well set the tone for the day.  Consumer Confidence is notable in that it’s an October report, whereas the others are September (except Case Shiller which is August).  This either means it will matter more or that it will be disregarded as overly distorted by the shutdown.

The 5yr Auction at 1pm can provide a moderate course correction in the afternoon hours but isn’t the same sort of market mover as the morning data.

 

For more information please visit www.mortgagessiny.com