The country's housing market continued to inch closer to normalcy in June, but the slow rate of progress remains a concern for analysts.

Freddie Mac's Multi-Indicator Market Index (MiMi) rose 0.04 percent from May to June, ending the year's first half at a reading of 73.7, the company reported Wednesday. On a yearly basis, the gauge improved 7.67 percent.

The monthly index tracks housing market stability at the national, state, and metro level, using home purchase applications, payment-to-income ratios, employment, and proportion of on-time mortgage payments as measures of health. As of the June report, Freddie Mac rescaled the MiMi to make it easier to read, though the underlying data was left untouched.

An index value between 80 and 120 is considered stable, with readings outside that range considered too weak or too high to be sustainable. The all-time high for the MiMi was 121.87 in June 2008, while the low was 59.8 in September 2011, when the housing market was at its weakest. The latest reading marks a 23.2 percent rebound from that time.

"As we see the economy slowly normalizing we're starting to see its effects in the housing market as well, albeit very slowly," said Freddie Mac Chief Economist Frank Nothaft. "The good news is the big housing markets, of which some were also the hardest hit, continue to improve."

Nothaft pointed specifically to California, which has recovered 12 percent from this time last year, with all metros seeing improvements.

Florida and Illinois also looked strong compared to last year, picking up 14.8 percent and 12.9 percent, respectively, while states like North Dakota, Montana, Wyoming, Texas, and Louisiana all continue to look healthy.

"In these areas not only are markets producing jobs, but better paying jobs that translate into workers taking out applications to purchase a home and income growth that keeps homebuyer affordability strong," Nothaft said.

Nationwide, 13 states and the District of Columbia all have MiMi values in their own stable range, with North Dakota (96.2), Washington, D.C. (94.3), Wyoming (92.3), Montana (89.7), and Alaska (88.7) ranking highest.

Out of the 50 metros surveyed, only six are in a stable range, half of which are in Texas: San Antonio (92.0), Houston (83.9), and Austin (87.4). The others on the list are New Orleans (84.8), Salt Lake City (84.5), and Los Angeles (82.7).

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Report: Annual Rate of Home Sales Falling

The nationwide annual rate of the sale of residential properties, which include single family homes, condominiums, and town homes, declined by 3 percent month-over-month and 12 percent year-over-year in July, according to RealtyTrac's July 2014 U.S Residential & Foreclosure Sales Report released on August 29.

RealtyTrac reported residential properties sold at an annual rate of 4,634,513in July 2014, which marked the third straight month in which there was a year-over-year drop in annual home sales volume.

Meanwhile, median prices of homes (both distressed and non-distressed properties) increased from June to July by 3 percent up to $191,000, its highest level since September 2008. The median price rose by 12 percent from June 2013, according to RealtyTrac.

The median price of only distressed sales (sales of properties that are bank-owned or in some stage of foreclosure) stood at $128,000 for July, a 3 percent month-over-month increase and a gain of 11 percent year-over-year, according to RealtyTrac. That price still fell way below the median price of non-distressed properties, which was $204,000.

RealtyTrac reported that the percentage of total residential property sales that were distressed sales and short sales (sales by a distressed borrower for less than the balance of the mortgage) increased month-over-month in July but declined year-over-year. Distressed sales and short sales made up 13.6 percent of all residential home sales in July, which is an increase of 12.8 percent from June but a drop of 15 percent from July 2013.  The market with the highest percentage of combined distressed sales and short sales was Las Vegas, with 40.3 percent.

"As distressed sales continue to decline, the share of sales is tilting toward more expensive homes, boosting the nationwide median sales price," said Daren Blomquist, vice president of RealtyTrac. "The nationwide home price increase, however, masks slowing home price appreciation in the majority of housing markets across the country. This slowing appreciation was expected and provides another sign that the real estate recovery thus far is behaving rationally. Still, the housing market is entering a dicey transition phase where it is becoming much more reliant on first-time homebuyers and move-up buyers to sustain the recovery as investor involvement wanes."

The percentage of total homes sold that were bank-owned (REO) was 8 percent in July, its lowest level since January 2011, according to RealtyTrac. That number marked an 8 percent decline from June and a 9.1 percent drop from July 2013.

Foreclosure auctions made up 1.2 percent of all residential properties sold nationwide in July, according to RealtyTrac. This percentage represented a slight increase from 1.1 percent in June and from 0.8 percent from a year ago.

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High Negative Equity Among Gen-Xers Causing Housing Gridlock

Much has been said, and even more theorized, about why millennials are not buying homes at the same rate their generational predecessors bought when they were new-generation homebuyers themselves. Zillow, however, may have found a real answer in the fact that generation X and baby boomers are largely underwater.

According to Zillow's latest Negative Equity Report, high negative equity among Gen-X homeowners is causing gridlock in the U.S. housing market.

Nearly 43 percent of homeowners between 35 and 49 are underwater on their mortgages. In contrast, only 15 percent of millennial homeowners (those between 20 and 34 years old) and 31 percent of baby boomers (50 to 64 years old) are underwater.

This storehouse of negative equity among the two older generations limits millennials from homeownership mainly because of the ripple effect created when underwater homeowners have trouble listing their properties for sale: baby boomers may not be able to find move-up buyers for their homes because Gen-Xers are stuck with troubled mortgages, Zillow reported. In turn, millennials can't move into the more affordable starter homes currently occupied by Gen Xers. In other words, the very types of houses young first-time buyers would be most able to afford are not hitting the market, and millennials are increasingly getting priced out.

Zillow found that among all homes with a mortgage nationwide, 28 percent that are valued within the bottom third of home values were underwater in the second quarter. This compares to about 16 percent of homes in the middle tier and 9 percent in the top tier.

All ages combined, more than a third of homeowners with a mortgage are effectively underwater and unable to sell their homes for enough profit to comfortably, meet expenses related to selling, and afford a down payment on a new home, the report stated.

Zillow's chief economist, Stan Humphries, said the recession is largely to blame, having most crippled the homes the majority of Gen-X bought.

"On the surface, the housing recession did not overtly impact millennials' housing wealth to the degree it did Generation X and the Baby Boomers," Humphries said. "Most millennials were likely too young to have purchased a home during the bubble years. But as this huge generation begins to consider buying homes, they're entering a market still very much in recovery and far from anyone's definition of normal."

Because so many homes are stuck in negative equity or are effectively underwater, the inventory of homes for sale is severely constrained, Humphries said. This leads to increased competition for homes and the frank reality that many millennials are simply too young and too new to the workforce to have saved up significant money to compete with more established older buyers.

"The reality is, negative equity is part of the new normal," Humphries said. "Finding creative solutions to keep homes affordable, available, and accessible to [millennials] will be critical going forward."

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Jerry Gusman, The Gusman Group

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California Holds 5 of Nations Ten Costliest Markets

  

We all know that home-prices have remained flat throughout the year, but the run-ups of 2013 have left the bar at its highest point in years, creating issues of affordability nationwide. This problem is only intensified in California though, as prices remain exceedingly high for a handful of markets throughout the Golden State, putting home ownership out of reach for a growing number of would-be buyers on the west coast.

According to a new report from the National Association of Realtors, which measured the median price of homes sold in the second quarter, five of California’s largest markets are among the top 10 most expensive housing markets in the country.

San Jose, where the median existing single-family price was $899,500, took the first spot in this category, followed closely by San Francisco, Orange County, San Diego and Los Angeles, where median prices reached $769,600, $691,900, $504,200 and $420,300 respectively.

Even the relatively inexpensive Inland Empire sat 21st on the list— pricier than Miami; Austin, Texas; or Chicago — with a median of $274,600.

Prices rose more slowly compared with last year in most U.S. housing markets, the report said. But prices are now well above levels of the last few years. That has put home buying out of reach for growing numbers of households, especially in high-cost markets.

Qualifying for a mortgage on a median-priced home in Orange County with a 20% down payment would require household income of $131,168, the report estimates; with 5% down, it would require $155,762.
In metro Los Angeles, a median-priced home would require $79,679 in household income to qualify at 20% down, and $94,619 at 5% down.

While this may seem reasonable to some, these statistics should raise concern considering the median household income in Orange County is $75,566, according to the Census Bureau. In Los Angeles County it is $56,241.

Do you think this affordability crisis stems from overpriced homes or a lack of household income? What needs to change before affordability eases? We’d love to hear your thoughts!

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Jerry Gusman, The Gusman Group

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Fannie Mae sees lower home sales in 2014

 

Mortgage giant Fannie Mae forecasts fewer home sales in 2014, citing conservative consumers.

Harsh winter weather hampered housing starts and sales in the first half of the year, but some economists expected a rebound in the second half. Yet Fannie Mae, the government-sponsored mortgage company, says it expects "only minor improvement."

"The outlook for the housing market has deteriorated as housing activity appeared to have lost momentum at the end of the second quarter," the company said in a news release. Although housing still is expected to contribute to economic growth this year and in 2015, "it does not appear likely to be a growing driver of growth going forward."

The company's forecast raises doubts about a sector that was expected to be a key pillar of stronger economic growth.

Fannie said it expects 995,000 housing starts this year, down from its July forecast of 1.05 million and up only modestly from last year's 925,000. It expects 1.2 million starts in 2015, down from its previous estimate of 1.3 million.

The company projects new and existing home sales will total 5.3 million this year, lower than its July forecast of 5.5 million, which was slightly below the 2013 total. Sales next year are expected to total 5.1 million, vs. its previous estimate of 5.2 million.

Average 30-year fixed mortgage rates are 4.12%, below the year-ago average of 4.46% but higher than 3.45% in April 2013. The following month, the Federal Reserve began signaling that it intended to wind down bond purchases that were holding down long-term interest rates, pushing up borrowing costs across the economy.

"Additionally, on the demand side, there appears to be a conservatism among consumers and their willingness to take on big-ticket purchases, such as homes," Fannie said in the release.

The mortage giant, however, raised its 2014 forecast for U.S. economic growth to 1.9% from 1.5%. It said stronger consumer spending and bigger job gains should push economic growth to 3% at an annual rate in the second half of the year from below 2% in the first half.

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Jerry Gusman, The Gusman Group

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California Home Sales Still Slow Despite 3.9 Percent Jump

Single family home and condominium sales in California experienced a month-over-month increase of 3.9 percent for July but saw a 9.2 percent decline year-over-year, according toPropertyRadar's July 2014 Real Property Report for California.

Sales for single family homes and condos for the first seven months of 2014 year-to-date are at their lowest levels since 2008, the report stated.

Several factors contributed to the significant year-over-year decrease in California home sales, which fell in 13 of the state's 26 largest counties, the report said. A major reason for the decrease was the decline in distressed property sales. In July 2014, 17 percent of home sales were distressed properties, down from 25.6 percent in July 2013. PropertyRadar reported that rising interest rates and affordability due to price increases were also factors in decreasing home sales.

"Lackluster sales volumes so far this year should come as no surprise given the fact that in many California counties houses have simply become unaffordable," said Madeline Schnapp, director of economic research for PropertyRadar. "The decline in affordability in concert with the rapid decline in lower priced distressed properties for sale has exacted a toll on demand."

The median price of a home in California in July edged slightly upward by 0.3 percent ($1,100) to $390,000, the smallest month-over-month gain since January 2014 according to PropertyRadar. By comparison, in July 2013, median home prices shot up 7.8 percent from the previous month. The slight uptick in median home price from June to July this year was fueled by a 4.4 percent month-over-month increase in the sales volume of more expensive non-distressed properties, which comprised 83 percent of total sales in July 2014 as opposed to 74.4 percent a year ago.

Other highlights from the PropertyRadar report for July 2014 for California include:

• Cash sales comprised a significant percentage (21.6) of all sales even they have been falling since they reached their interim peak of 36.5 percent in August 2011.
• Negative equity continues to decline but is still high. More than one million homeowners in California (12.1 percent) are underwater on their mortgage.
• Foreclosures and notices of default (NODs) started a downward trend that began in March 2009. Foreclosures and NODs fell by2.9 percent month-over-month in July and 22.2 percent year-over-year.

Home Builders Claim $1,000 Price Increase Can Shut 200,000 Out of the Market

You know that old saying, “Every little bit helps.” Well, the opposite might also be true when it comes to home prices.

A new study from the National Association of Home Builders (NAHB) revealed that a mere $1,000 increase in the cost of a new, median-priced home prevents more than 200,000 prospective buyers from even making an offer.

The NAHB makes several assumptions to come up with that number. For example, they use a median national new home price of $275,000. Additionally, the buyer is only expected to put down 10%. And themaximum front-end DTI can’t exceed 28%.

Also, the mortgage rate used is 4.5% on a 30-year fixed mortgage. For the record, if any of these details change just a little, the math could be thrown completely out of whack.

[See the latest mortgage rates from dozens of lenders, updated daily.]

And guess what, mortgage rates do change all the time, and not everyone has to pay private mortgage insurance. It also depends on the type of loan in question, among other things.

Still, of the nearly 118 million households in the United States, 206,269 wouldn’t be able to purchase a home that is $1,000 more expensive.

Texas the Most Priced Out State in the Nation

Of course, the impact depends on where the home is located. In places where homes are already mostly unaffordable, tacking on another $1,000 to the sales price will do very little, if anything.

But in places where prices are largely affordable, a seemingly small shift can force thousands to continue renting as opposed to buying.

Overall, Texas would be the hardest hit state, with 18,250 households no longer able to qualify for a mortgage based on a $1,000 increase to a median-priced home.

Of course, there are more than nine million households in the Lone Star State, so it’s not as bad as it sounds.

Conversely, only 313 households (of over 225k) in Wyoming would be affected by a $1,000 home price increase, making it the least vulnerable state in the nation.

In California, where the population is largest, only 14,423 households would be priced out because there are fewer affordable new homes to begin with.

At the metro level, the New York-Northern New Jersey-Long Island area would be most affected by a $1,000 price increase, with 5,742 households effectively priced out.

It’s followed by the Chicago-Joliet-Naperville, IL-IN-WI MSA, where 5,325 households would be priced out, despite having about half the number of households.

Same story here – nearly a third of all local households can afford new homes in the Chi-Town metro, whereas only 19% of households in the New-York area can qualify for new home mortgages before any price hikes are even factored in.

Similar pricing out can be seen in places like Atlanta, Baltimore, Houston, and Las Vegas.

In Napa, California, where less than 15% of all households can afford a median-priced new home, only 18 households would be priced out.

By the way, the purpose of the study seems to be driven by the NAHB’s distaste for regulatory fees, which they claim are passed onto the consumer. For example, every $833 increase in cost (permits, impact fees) results in a $1,000 increase in home price.

And their research shows regulations imposed by the government account for 25% of the final price of a newly-built single-family home.

In reality, there are all always plenty of options to qualify for a mortgage, even if the numbers are really tight. Shopping around to get your interest rate and closing costs lower can make much more of an impact than a $1,000 home price increase.

Housing Report Bucks Conventional Wisdom

Conventional wisdom seems to suggest that recent housing data points to reasons for analysts to worry about the direction of the economy. A new report makes the case that the picture is much brighter then their consensus would lead one to think.

“It’s scary to be a contrarian, particularly if you’re contrarian and bullish. In retrospect, this position is the most fun— if you’re right,” said Michael Simonsen, co-founder and CEO of Altos Research.

Recently, his group published its 2015 Housing Report. Based on real-time observations of housing supply and demand, among other conclusions, the report is forecasting a 7 percent home price increase for 2015.

In terms of home prices, the U.S. real estate market hit the absolute bottom on January 4, 2011, according to the report. Since then, home prices are 39 percent higher.

“Yet every day we see media headlines declaring weakness and disappointment. As recently as June 2015, housing apparently remains a chief concern for Fed chief Janet Yellen, who uses phrases like much slower pace than expected and slowdown,” Simonsen said.

These attitudes reflect a myopic view of actual market conditions and conflate concerns over the mortgage industry, the otherwise-constrained new construction market, and, more broadly, the long-term financial stability of the U.S. consumer with specific current housing market supply and demand dynamics, according to Simonsen.

While these are valid long-run concerns, the variables impacting home prices have proven to be driven by low available supply and growing household formation.

“The real-time data paints a much more robust environment than the headlines would indicate. Demand remains high; transactions happen very quickly,” he said. “Home prices are up another 9 percent year over year as of July 2014. We’ve had a strong run and the American consumer is anxious to again buy real estate.”

The report goes into depth about a number of leading indicator metrics. It projects that that the U.S. housing market will end the year up about 8 percent to 9 percent from the end of 2013. That boost alone will help 2015 proceed to a reasonable appreciation rate, according to Simonsen.

“Demand for mortgages is down, demand for housing must be down, and that’s bad. Right? Apparently not. Demand for mortgages is down. But the data keep telling us that demand for housing is not subsiding (as of the first week of March, 2014),” he said.

According to Simonsen, a number of trends point to a strong U.S. housing market in 2015. To begin with, all cash deals are high and climbing. For example, 47 percent of home purchases were all cash in December 2013, up from 27 percent a year ago. In addition, contrary to most casual observers’ opinions, the big institutions are not driving the cash purchases. Buyers are cash-rich consumers and small-time investors buying a second or third property.

Furthermore, even if mortgage demand is weak, demand for housing is still very high. Housing demand, as measured by some of Altos Research’s proprietary metrics, is only a little softer than last year at this time.

Finally, another positive development is that interest rates are actually falling. After the spike a year ago, rates have drifted lower again. This implies that the bull market for U.S. real estate has room to run when leverage increases again.

For more information contact

Jerry Gusman, The Gusman Group

(888) 213-4208

Jerryggroup@aol.com