Home Prices on the Rise

While home purchases have slowed in the past few months, it appears that prices continue to rise.

Black Knight Financial Services released a report showing that the national Home Price Index (HPI) improved in general throughout the month of May across 18,500 examined zip codes in the United States. Home prices are now just 11 percent off of their 2006 peak. The HPI represents the price of non-distressed sales by taking into account price discounts for REO and short sales.

The HPI rose a total of 0.9 percent in May to $239, which is a $14 increase year-over-year. However, indicative of the slowdown analysts have also been tracking since the beginning of the year, the HPI has only risen by $3 since the beginning of 2014.

At the state level, prices in Colorado and Texas hit record highs while Rhode Island, Michigan, Colorado, Connecticut, and Idaho made up the top five states in terms of percentage growth month-over-month. Maryland, Arizona, Hawaii, Louisiana, and California rounded out the bottom five.

The 10 metros with the largest increases showed a slight regional tendency toward Connecticut, which had four of the top ten.  No other state claimed more than one top-performing metro. Among the 10 worst-performing metros there appeared to be great regional concentrations, with 4 metros in California and 3 in Florida. Among the lowest metros, only Lakeland, FL and Tuscon, AZ saw negative or zero percent growth.

The rising housing prices are a catch 22 proposition. On one hand the rise in prices allow sellers to regain some of the equity lost in the wake of the financial crisis. On the other hand, the beginning of 2014 has seen a considerable slowdown in the home sales and rising prices do little to reverse that trend.

FOR MORE INFORMATION CONTACT

Jerry Gusman, The Gusman Group

888-213-4208

SIGTARP Calls for Changes to HAMP

The office of the Special Investigator General for TARP (SIGTARP) released its quarterly report on the progress and status of the Troubled Asset Relief Program.

Among the report’s findings was the assertion that TARP’s signature housing program, The Home Affordable Modification Program (HAMP), has not provided enough sustainable foreclosure relief given the unspent TARP funds that Treasury has set aside. Treasury had allocated $45.6 billion in funds to be provided for housing relief. To date they have spent $12.8 billion.

HAMP’s foreclosure relief is only sustainable if the homeowner does not fall out of the permanent mortgage modification during the five year period, increasing the risk of foreclosure.

HAMP has seen its share of problems. As of June 30, 2014, only 958,549 homeowners were active in a HAMP permanent modification. In an effort to attract more people, Treasury continues to extend the application period for Making Home Affordable (MHA) programs such as HAMP, and did so again on June 26, 2014, further extending the programs  through December 31, 2016.

Twenty Nine Percent of the individuals that had taken advantage of the program and obtained a modification on their home loan have since fallen out of the program because of an inability to pay their new, lower mortgage payment.

SIGTARP implored the Treasury Department to implement the changes to HAMP that the office had previously suggested.

First, the report says that Treasury should promulgate benchmarks and goals for acceptable program performance for all MHA servicers, including the length of time it takes for trial modifications to be converted into permanent modifications and the length of time it takes to resolve escalated homeowner complaints.

Next, the report argues that Treasury should complete a public assessment of the program performance of the top 10 MHA servicers’ against acceptable performance benchmarks. Criteria would include the length of time it takes for trial modifications to be converted into permanent modifications, the length of time it takes to resolve escalated homeowner complaints, and the percentage of required modification status reports that are missing.

Further, SIGTARP calls for more stringent enforcement. Specifically, they want Treasury to ensure that all servicers participating in MHA comply with program requirements by strenuously enforcing the terms of the servicer participation agreements. Treasury should be transparent and make public all remedial actions taken against any servicer.

Home Ownership Rate Dips to Lowest Level in Almost Two Decades

Homeownership in the United States lost a little more ground last quarter, declining to a new 19-year low as consumers—particularly young adults—continue to grapple with debt and difficulties obtaining credit.

According to an estimate from the Census Bureau, the U.S. homeownership rate was 64.7 percent in the second quarter, a decrease of 0.1 percentage point from the first quarter's previous low and 0.3 percentage points from the same time last year. It was the lowest rate since 1995.

Homeownership continued to slide among the millennial age group, who find themselves more burdened than other groups by high debt, tight credit conditions, and limited job prospects. The percentage of young adults who own their homes was 35.9 percent last quarter, down nearly a full point from last year.

As housing trends move in a healthier direction, one of the biggest headwinds has been a lack of activity among first-time homebuyers, who historically account for 40 percent of sales activity, according to the National Association of Realtors (NAR). Through this year, that share has hovered around 28 percent.

While today's young adults have so far been inactive compared to historical norms, a recent report from NAR suggests a number of markets, particularly those in the Midwest and West, are likely to see more activity from millennials as labor market conditions and home prices create a more favorable market for buyers.

As millennials age and start to hit their own life milestones, the group expects to see a resurgence in younger homebuyers.

"Millennials will eventually settle down, trade their roommates for spouses and want to raise a family," commented NAR President Steve Brown on the study. "As long as median income continues to support purchasing power in most areas, the demand and opportunity will be there for Millennials to purchase their first home with guidance and insights from a Realtor."

For more information contact:

Jerry Gusman, The Gusman Group

888-213-4208

jerryggroup@aol.com

What To Expect From Housing In The Second Half Of 2014

If the housing market was in overdrive for much of 2013, during the first half of 2014 it hit the metaphorical brakes. Winter storms across the nation contributed to sluggish sales during the first quarter, while rising mortgage rates and tight inventory didn’t help. By spring housing began to thaw, with April Existing-Home (previously-owned) sales numbers ticking up for the first time as the pace of price gains slowed. By June, sales had reaching theirhighest levels since last October.

Although the headlines each month can create high drama as the numbers go up and down, the theme so far this year is this: we’re steadily on the road back to normal. Here’s what real estate experts say to expect for the second half of 2014.

Prices will go up, but not as fast as in 2013
In 2013, the housing market clocked double-digit, year-over-year price gains each month. Now that pace is slowing. Prices across the 20 metro areas tracked by the S&P Case-Shiller Indices rose by 10.8% year-over-year in April, a significantly slower rate than the prior month, when prices rose 12.6% for the 10-City Composite and 12.4% for the 20-City Composite. Other indices are also reporting slows: Mountain View, Calif.-based data firm Altos Research finds that through June 30th, prices are up just 9% year-over-year.

Expect the slowdown to continue right through December. “Some markets are seeing a big slowdown,” says Jed Kolko, chief economist at Trulia. “The boom markets of the Southwest and California are seeing prices level out. In markets where the recovery has come a bit slower, prices are still accelerating; parts of the Midwest and the South are now leading the country in price changes.” Nela Richardson, chief economist at Redfin, adds that Redfin agents are seeing far fewer bidding wars than in 2013.

By the end of 2014, both Stan Humphries, chief economist at Zillow, and Mark Fleming, chief economist at CoreLogic, an Irvine, Calif.-based real estate data firm, expect home prices to be up about 5% for the calendar year. By comparison, the median price of an existing home gained 11.5% in 2013, the highest annual gain since the median priced rose by 12% in 2005, according to the National Association of Realtors. ”It will be another three years before we hit the peak levels we last saw in 2007,” says Humphries.

The slowdown is due to a few different factors. First, the foreclosure crisis has largely ended, meaning that fewer homes sold are distressed (foreclosures or short sales). In June, distressed homes comprised about 11% of sales, down from 15% one year earlier, according to NAR data. A recent RealtyTrac report shows June foreclosure activity at its lowest level since August 2006. With fewer bargains left on the market, there is less room left for prices to rise, says Kolko.

A second reason for the deceleration in price gains: inventory is finally easing up–a bit.

Supply will continue to increase
Throughout the recovery, the stock of available homes for sale has been well below the 6-month supply (calculated based on that month’s sales pace) that economists consider the hallmark of a healthy market. In January, available, for-sale resales stood only at a 4.9-month supply, according to NAR. By June, inventory had increased to a 5.5-month level.

“The biggest challenge of the past 18-20 months has been low inventory,” says Michael Simonsen, CEO of Altos Research. ”As price increases kick in more people are above water on their mortgages, so supply is increasing a little bit.”

Still, negative equity remains high: about 18.8% of homeowners had underwater mortgages in June, according to Zillow. The burden falls most heavily on homeowners at the lowest price tier, where homes are three times more likely to be underwater than the top one-third of homes. About 30% of homeowners in the bottom one-third of the residential market are underwater, says Zillow’s Humphries, while only about 11% of homeowners in the top tier face negative equity. The good news is that, on average across the nation, prices are rising fastest in the lower price tier. Expect more returns to positive equity–and an accompanying expansion of homes for sale–as the year progresses.

New construction has been a sad story so far this year. While homebuilder confidence is rising, housing starts (groundbreakings) fell by 9.3% in June from the prior month. Last month’s numbers were the weakest since September 2013, and the second consecutive month drop, according to the Commerce Department. “We have been under-building for six years,” remarks Simonsen.

June’s abysmal numbers did have a few silver linings. Overall, housing starts were actually 7.5% higher than one year earlier. The entire decline was concentrated in the South, defined by the Census as the states between Delaware and Texas, where groundbreakings dipped by nearly 30% from May to June. In each of the other three Census regions, housing starts actually increased.

There certainly is demand for new construction. In May (the latest data available), sales of new homes, a much smaller portion of the market than resales, jumped by 18.4%, according to Commerce. Update: Commerce later revised the numbers downward to an 8.3% jump for May, followed by an 8.1% tumble for June, leaving sales of new homes just about flat with April.

Multifamily starts continue to be an “unusually large share of total construction starts,” points out Kolko. “Builders are expecting strong demand as young people start to move out of their parents’ houses.”

Expect inventory to continue to ease up in the second half of the year, largely due to rising home prices.

Changed fundamentals mean a new normal
Mortgage rates stood at 4.13% for conventional (30-year, fixed-rate) loans for the week ended July 18, 2014. The Mortgage Bankers Association predicts rates will hit 4.7% by the end of the year, while Fannie Mae predicts a lower 4.3% for Q4. Although higher than last year, those rates are still low compared to historical norms.

Despite this, The Fed says the housing recovery has “lost traction,” based in part on low household formation and residential construction numbers. “Even after rising noticeably in 2012 and the first half of 2013, real residential investment remains 45 percent below its pre-recession peak,” reads a mid-July Fed report. “The lack of a rapid housing recovery has also affected the labor market: Employment in the construction sector is still more than 1.6 million lower than the average level in 2006.”

Many long-term drivers of housing demand are stalled, writes Nela Richardson, chief economist at Redfin, pointing to “below average growth in median household income, labor force participation, bank lending and household formation.” And despite high levels of corporate profitability (historically the leading indicator for wage increases), pay levels remain stagnant.

Given these realities, and the short supply of inventory of less expensive homes, it’s not surprising that first-time home buyers comprise a relatively low 28% of the market, as of the latest NAR numbers. Although high student debt loads have been frequently blamed for crowding out younger buyers, CoreLogic’s Fleming calls that theory “a red herring,” pointing to Brookings Institution data suggesting this generation’s debt burden is no worse than in the prior one. Trulia’s Kolko says the lack of buying activity among people 18-to-34-year-olds is due entirely to demographic changes: this group is marrying and having children later, and includes fewer non-Hispanic whites, than 30 years ago.

Those factors relate to some housing trends that are not going away: younger people are continuing to live with their parents, and when they  move out, often moving to rentals rather than purchases. “In the second half of this year we should see a lot more new apartments come onto the market, because many new apartment buildings were started last year,” says Kolko of Trulia. “There is a strong demand for apartment rentals, but we should also see more supply.”

For more information contact

Jerry Gusman, The Gusman Group

(888) 213-4208

jerryggroup@aol.com

Home Prices Expected to Fall in Some Markets

With ongoing home price gains continuing to trend downward, one in five markets are poised for depreciation over the next year, according to one analytics firm.

Over the 12-month period ending in June 2015, nearly 20 percent of the more than 340 markets covered in Veros Real Estate Solutions' quarterly VeroFORECAST are expected to experience a decline in home prices, the company said Tuesday.

While that leaves 80 percent of the country on an upward growth path, "all but the most upbeat markets are slowing in their value improvements," Veros said in its third-quarter update.

California leads among the projected strongest markets, with the San Jose-Sunnyvale-Santa Clara and San Francisco-Oakland-Fremont metros ranking first and second with predicted value growth of 10.6 percent and 10.5 percent, respectively.

"San Jose housing supplies are down and San Francisco is seeing a serious housing shortage," said Eric Fox, Veros' VP of statistical and economic modeling and the developer of VeroFORECAST. "Inventories in both are down 70 percent from their peak in 2008 and demand is outstripping supply, leading to price run-ups and decreased affordability despite low interest rates."

Out of the few available homes in the most affordable price tier, "those that remain are hotly contested," Fox continued.

Also ranking in the top five markets for predicted growth are Austin-Round Rock, Texas (10.0 percent); San Diego-Carlsbad-San Marcos, California (9.0 percent); and Houston-Sugar Land-Baytown, Texas (8.9 percent).

The projected five weakest markets are a bit less concentrated, though most share the same region. Taking the top spot for projected depreciation is Rockford, Illinois, where home prices are forecast to decline 3.4 percent by next June.

"Rockford real estate is experiencing hard times, going from -2.6 percent to -3.4 percent in a single quarter," Fox said. "The culprit is its 10.4 percent unemployment rate coupled with a flat population growth trend. These are familiar and persistent themes among the weakest markets."

Atlantic City, New Jersey, which was previously the No. 1 market for expected depreciation, fell back to the fifth spot, with -2.2 percent growth expected.

Falling in between the first and fifth slots were Trenton-Ewing, New Jersey (-2.9 percent); Scranton-Wilkes-Barre, Pennsylvania (-2.6 percent); and Poughkeepsie-Newburgh-Middletown, New York (-2.5 percent).

Nationally, Veros' future home price index forecast suggests the top 100 metros will experience 2.5 percent appreciation over the next year, down from last quarter's predicted 3.4 percent growth.

"In summary, we are still seeing good appreciation in the top markets, but there is definite slowing overall," Fox said.

For more information contact

Jerry Gusman, The Gusman Group

(888) 213-4208

jerryggroup@aol.com

Possibility of a New Bubble Concerns Lenders

As home prices continue to rise—albeit slower than last year—many commentators insist that fears of a new bubble in the making are overblown. However, a new survey released Tuesday suggests lenders aren't buying it.

In a survey of U.S. and Canadian mortgage lenders conducted by the Professional Risk Managers' International Association (PRMIA), FICO found 56 percent of respondents directly involved in the industry are concerned that "an unsustainable real estate bubble is inflating."

"The home loan environment has bifurcated," said Dr. Andrew Jennings, chief analytics officer at FICO and head of FICO Labs. "Six million homeowners in the U.S. are still underwater on their mortgages, with the average negative equity a whopping 33 percent. Yet with home prices soaring in many cities, total homeowner equity in the U.S. is at its highest level since late 2007.

"That doesn't feel like a healthy, sustainable growth situation," he continued.

Surveyed about common concerns that arise during the underwriting process, most of the bankers surveyed—59 percent—pointed to "high debt-to-income ratio" as their top worry when approving any consumer loan.

Those respondents aren't alone in their concern. In a recent report, the American Enterprise Institute's International Center on Housing Risk suggested that high debt-to-income levels are to blame for today's still-high loan risk.

"As consumer confidence picks up and people increase their borrowing, lenders are understandably concerned about growing indebtedness," said Mike Gordon, FICO's executive vice president of sales, services, and marketing. "When I talk with bankers, they tell me they're happy to see growing consumer optimism, but they're wary of a return to reckless borrowing."

The second and third most common concerns were "multiple recent applications for credit" at 13 percent and "low FICO Score" at 10 percent, FICO reported.

For more information contact:

Jerry Gusman, The Gusman Group

888-213-4208

jerryggroup@aol.com

Foreclosure Starts Rise for the First Time in Months

Foreclosure starts rose for the first time in eight months in May, but there is still reason to be optimistic about the United States housing market, according to the latest Mortgage Monitor Report of the latest available data released by Black Knight Financial Services. The report indicated that foreclosure starts nationwide rose by 9.5 percent.

The rise in May reverses the eight month trend of continuing decline in starts. However, the outlook for the housing market is still trending upward compared to years past and Black Knight cautioned against reading too much into the backwards step.

"While foreclosure starts did rise over 9 percent in May, it's important to remember the historical trend is still one of improvement," said Kostya Gradushy, Black Knight's manager of Loan Data and Customer Analytics. "On a year-over-year basis, January through May foreclosure starts were still down 32 percent, and we are still looking at the lowest level of foreclosure starts in seven years."

"Additionally, over half of these starts are repeat foreclosures, rather than new entries into the pipeline, That is, these are loans that had been in foreclosure, shifted back to either current or delinquent status by way of modification, repayment plan or some action by the borrower, but have now fallen into foreclosure once again."

New Jersey was the only state in the union to see a year over-year increase in foreclosure starts and almost 80 percent of starts nationwide came from loans originating in 2008 or earlier.

Although foreclosure starts were up in May there were positive notes to take from the report. The total U.S. foreclosure pre-sale inventory rate actually dropped 5.62 percent in the month. Foreclosure inventory is down 37.23 percent year-over-year, signaling that Americans are more likely to be able to pay their mortgages now than they have been at any point since the financial crisis began.

Likewise, the overall loan delinquency rate (the number of loans 30 or more days past due, but not in foreclosure) is down 7.55 percent from this point last year and stayed static in May at 5.62 percent.

This bump in the road notwithstanding, a look at the recent trend in mortgage performance and other indicators reveal that there is still good reason to be cautiously optimistic that housing will continue on its long, gradual path to recovery.

FOR MORE INFORMATION CONTACT

Jerry Gusman, The Gusman Group

(888) 213-4208

jerryggroup@aol.com