Pending Home Sales Slowed In August

Pending home sales slowed in August, with all regions posting declines except for the West, according to the National Association of REALTORS®’, Pending Home Sales Index,a forward-looking indicator based on contract signings. NAR says that fewer distressed sales and less investor activity most likely contributed to August’s decline in contract signings.     pending home sales

The index slipped 1 percent in August, falling 2.2 percent below year-ago levels, NAR reports. However, the index was at 104.7 in August. Anything above 100 is considered an average level of contract activity, according to NAR.

“Fewer distressed homes at bargain prices and the acknowledgment that we’re entering a rising-interest-rate environment likely caused hesitation among investors last month,” says Lawrence Yun, NAR’s chief economist. “With investors pulling back, the market is shifting more toward traditional and first-time buyers who rely on mortgages to purchase a home.”

However, first-time home buyers have made up less of the market share in recent years, representing less than a third of all buyers each month for the past two years. Yun expects first-time buyers to gradually resurface, despite persistent tight credit conditions.

“The employment outlook for young adults is brightening, and their incomes finally appear to be rising,” Yun says. “Jobs and income gains will help repay student debt and better position first-time buyers, setting the stage for improved sales growth in upcoming years.”

Yun expects existing-home sales to strengthen in the second half of the year as inventory conditions improve. He expects existing-home sales to slip 3 percent overall and the median existing-home price to grow between 5 and 6 percent this year.

Regional Breakdown

Here’s a snapshot of the Pending Home Sales Index across the country in August:

  • Northeast: The index slipped 3 percent to 86.5 but remains 1.6 percent above year-ago levels.
  • Midwest: The index dropped 2.1 percent to 102.4 and is 7.6 percent below August 2013 levels.
  • South: The index fell 1.4 percent to 117, holding steady compared to year-ago levels.
  • West: The index increased 2.6 percent in August, the fourth consecutive month of gains, but remains 2.6 percent below year-ago levels.

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Source: NAR

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When Mortgage Rates Rise…..

Mortgage rates have hovered around yearly lows for weeks. But with rate-hike forecasts looming, can buyers count on borrowing costs to stay low?              mortgage rates

Many economists are now predicting the average 30-year fixed-rate mortgage to reach 5 percent by the middle of the next year, The New York Times reports. On Friday, Freddie Mac reported 30 year fixed rate mortgage averaging 4.20 percent. The hike in rates is partially due to the Federal Reserve’s plan to withdraw from buying mortgage-backed securities.

Economists note that while 5 percent mortgage rates are low by historical standards, such an increase still has the potential of reducing buying power in a home purchase. For example: According to some estimates, a 1 percent increase in interest rates can raise a monthly mortgage payment on a typical home by more than $700 in pricier parts of the country. The increase would likely be much more modest in other, less expensive markets.

But even in the case of rate hikes up to 7 percent, the analysis found that homes remain affordable overall. From 1985 to 2000, home owners’ housing costs—including the principal and interest on a median-priced home—accounted for 22 percent of a home owners’ median household income. However, for comparison, today’s households are spending about 15 percent of their median income on a median-priced home.

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Source: New York Times 09/25/2014

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950K Homes Returned To Positive Equity 2nd Quarter

Nearly 950,000 homes returned to positive equity in the second quarter, now bringing the total number of residential homes with equity nationwide to more than 44 million, according to CoreLogic’s Equity Report.

“The increase in borrower equity of $1 trillion from a year earlier is evidence that things are moving solidly in the right direction,” says Sam Khater, deputy chief economist for CoreLogic. “Borrower equity is important because home equity constitutes borrowers’ largest investment segment and, as a result, is driving forward the rise in wealth for the typical home owner.”                        positive equity

Still, home price rises are needed to help more home owners feel more confident in their equity position. Of the 44 million properties with positive equity, about 9 million – or 19 percent – have less than 20 percent equity (labeled “under-equitied”), and 1.3 million have less than 5 percent (considered “near-negative equity”), according to CoreLogic.

About 5.3 million homes – or 10.7 percent of all residential properties with a mortgage – remained in negative equity as of the second quarter. The number is falling. A year ago, 7.2 million homes – or 14.9 percent –were in negative equity. Negative equity is when borrowers owe more on their mortgages than their homes are currently worth.

“Borrowers who are ‘under-equitied’ may have a more difficult time refinancing their existing homes or obtaining new financing to sell and buy another home due to underwriting constraints,” according to CoreLogic’s report.

If home prices rise by just 5 percent, an additional 1 million home owners currently in negative equity could regain equity, according to CoreLogic’s analysis.

“Many home owners across the country are seeing the positive equity value in their homes grow, which lifts the economy as a whole,” says Anand Nallathambi, president and CEO of CoreLogic. “With more and more borrowers regaining equity, we expect home ownership to become an increasingly attractive option for many who have remained on the sidelines in the aftermath of the Great Recession. This should provide more opportunities for people to sell their homes, purchase a different home or refinance an existing mortgage.”

State Breakdown

The states with the highest percentage of properties with a mortgage in negative equity as of the second quarter were:

  • Nevada: 26.3%
  • Florida: 24.3%
  • Arizona: 19%
  • Illinois: 15.4%
  • Rhode Island: 14.8%

On a metro level, Tampa-St. Petersburg-Clearwater, Fla., had the highest percentage of mortgaged properties in negative equity at 26.2 percent, followed by Phoenix-Mesa-Scottsdale, Ariz., at 19.5 percent.

On the other hand, the following states had the highest percentage of properties with a mortgage that were in an equity position:

  • Texas: 97.3%
  • Alaska: 96.5%
  • Montana: 96.4%
  • North Dakota: 96%
  • Hawaii: 96%

On a metro level, Houston-The Woodlands-Sugar Land, Texas, boasted the highest percentage of properties with a mortgage in an equity position at 97.5 percent, followed by Dallas-Plano-Irving, Texas, at 97 percent.

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Source: CoreLogic

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Credit Reporting and Scoring Practices Looked At By Lawmakers

During a recent hearing of the House Financial Services Committee, lawmakers reviewed credit reporting and scoring system practices. Some advocated changes to help erase blemishes faster from a credit report and urged other factors to be considered in the scoring process.     credit reporting

For example, a new bill proposed by Rep. Maxine Waters (D-Calif.) aims to change the federal Fair Credit Reporting Act to require the national credit bureaus to delete most blemishes from a person’s credit report within four years, instead of the current seven. These blemishes would include delinquencies on credit cards and mortgages, foreclosures, short sales, and more. The bill proposed bankruptcies stay on file for seven years instead of the current 10. If this law is enacted, it means that many of the hardships consumers faced during the recession would be deleted from their credit reports.

Adopting a four-year standard would end “the unreasonably long time periods that most adverse information can remain on a credit report,” Waters says. “The predictive value of most negative information contained on a credit report gradually diminishes after two years.”

However, officials from the credit industry disagree. They argue that if a borrower has undergone a delinquency or foreclosure it is still relevant and predictive of future delinquencies for more than four years. They say removing such information sooner than the current seven years would harm lenders’ ability to evaluate the true risk potential borrowers’ may pose.

“It doesn’t seem right to us coming out of the Great Recession that we would erase predictive data” that lenders now use to underwrite applications for mortgages and other credit, says Stuart K. Pratt, president and chief executive of the Consumer Data Industry Association.

Also during the Congressional committee meeting, legislators weighed the feasibility of adding consumers’ monthly payments to utility companies, cable services, and rent to the credit score calculus. The national credit bureaus are in general favor of supplementing their own information with alternative credit data such as rental payment histories, but some consumer groups don’t agree with such a move.

During the hearing, Chi Chi Wu, staff attorney for the National Consumer Law Center, says her group opposes such inclusion of utility payments into credit reports because it could hamper consumers’ scores. She pointed to research that has shown consumers lower the priority of paying their monthly energy payments when money is tight. Therefore, she argues that a large number of consumers – particularly those with lower incomes – could wind up with 30- to 90-day delinquencies in their files if utility payments are included.

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Source: Washington Post 09/21/2014

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Mortgage Applications Have Trended Down

“Purchase mortgage applications have trended down over the past three months, despite the declining interest rate environment,” Doug Duncan, Fannie Mae’s chief economist, noted in his monthly economic outlook. “This suggests a residual conservatism on the part of consumers and supports our view that the pace of growth in the housing sector will be subdued during the remainder of 2014, with modest improvement in 2015.”

Following last week’s uptick, mortgage application volume reversed course and was back on its falling trend, as interest rates increased to the highest levels in several months, the Mortgage Bankers Association reports.                               mortgage applications

The MBA’s seasonally adjusted index of mortgage application activity showed applications down 4.1 percent in the week ending Sept. 19 compared with the previous week.

Applications for home purchases remain mostly stagnant on a seasonally adjusted basis, says Michael Fratantoni, the MBA’s chief economist. Applications for home purchases, viewed as a leading indicator of future home sales, fell 0.3 percent during the week and are down 16 percent from a year ago, a widening gap than in recent weeks.

Meanwhile, applications for refinancings dropped 7 percent during the week, as interest rates rose during the week. The 30-year fixed-rate mortgage rose to 4.39 percent, the highest rate since May 2014, according to the MBA.

“Following last week’s [Federal Open Market Committee] meeting, interest rates continued to inch up, as the end of QE [quantitative easing] was confirmed, and investors anticipate the first increase in short-term rates by the middle of next year,” says Fratantoni.

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Source: CNBC 09/24/2014

 

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First Time Buyers Turn To The Mom & Dad Bank For Help

First time buyers are increasingly turning  to the Mom and Dad bank to help fund their home purchases.

Twenty-seven percent of first time buyers last year received a cash gift from relatives or friends for a down payment, according to the National Association of REALTORS®. That’s up from 24 percent in 2014, and it also marks the highest share since NAR began tracking such data in 2009.                      first time buyers

Young professionals are facing high student-loan debt, a constrained job market, and stricter mortgage lending rules that are requiring higher down payments. Meanwhile, baby boomer parents are seeing rising stock and property values that may make them more inclined to help their children break into home ownership, particularly while mortgage rates are hovering near record lows, The Boston Globe reports.

“Without them, the [housing] recovery’s not sustainable,” says Anika Khan, a senior economist at Wells Fargo Securities. Parents’ financial assistance will help “move the housing recovery along.”

Deborah Baisden, a real estate professional with Prudential Towne Realty in Virginia Beach, Va., says she’s finding that more and more parents are gifting money.

“Because of student debt and because of kids having a tough time finding jobs, it’s becoming increasingly difficult for them to be able to buy homes,” Baisden told The Boston Globe. “We’re turning into a country of renters.”

Indeed, the struggle to come up with a down payment has been the top reason young professionals cite for why they’re renting rather than buying, according to a Federal Reserve report on the economic well-being of households.

Parental purse strings are opening at the right time, housing analysts say, with mortgage rates still low and investors retreating from the market, which may provide a greater opening to first time buyers. Investors tend to snatch up lower-priced properties with all-cash offers.

“With the investors stepping away, for some first-time buyers and Millennial buyers, they have less competition,” says Lawrence Yun, NAR’s chief economist. “So it would be an opportune time to enter the market.”

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Source: BostonGlobe.com 09/22/2014

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Nations Largest Home Lenders Cutting Involvement With FHA

The nation’s largest home lenders are curtailing their involvement in FHA  (Federal Housing Administration) loans, known for their small down payment requirements and help to first-time buyers and lower-income Americans. Lenders say they are concerned that they will be penalized if underwriting errors occur and the loans default. Therefore, they’re backing away from issuing the loans.       FHA loans

FHA loans have plummeted 19 percent in the nine months ending June 30 compared to a year earlier. Wells Fargo, the nation’s largest home lender, saw FHA originations drop 82 percent in the first six months of this year compared to the same time period in 2013, according to Inside Mortgage Finance data. Bank of America saw a 72 percent drop in that time, followed by JPMorgan with a 55 percent drop.

In a earnings call with investors in July, JPMorgan CEO Jamie Dimon said: “The real question to me is, should we be in the FHA business at all? And we’re still struggling with that.”

Lenders’ attitudes toward FHA loans have turned sour after facing steep settlements recently from the Department of Justice and federal regulators. JPMorgan Chase & Co., Bank of America Corp., and others have already paid more than $3 billion in fines for originating faulty FHA loans during the housing bubble.

“A big issue is the DOJ settlements and their impact on the lending attitudes of the banks, which is clearly the elephant in the room,” says Brian Chappelle, a former FHA official and partner at Potomac Partners LLC, a consulting firm for lenders in Washington. “The government is worried about access to credit. They’re looking at volume numbers and they know it’s a serious problem.”

HUD and Treasury officials recently met with bank executives at the White House to talk about improving FHA processes. Julian Castro, secretary of the Department of Housing and Urban Development, which oversees FHA, says the agency does seek to ease credit by rewriting clearly when lenders will be forced to pay the cost from loans that go bad.

“With all our efforts, I want to send a simple message to lenders: Let’s work together,” Castro said in a prepared statement at the Bipartisan Policy Center Housing Summit on Sept. 16. “Many have been reluctant to lend because they fear unanticipated consequences. They need to be able to manage their risk better—and so does FHA.”

Anthony Hsieh, CEO of LoanDepot.com, the third largest FHA lender, urges government regulators to do something fast. “Access to credit is tightening across the board and the number of people who can get a home is shrinking to the point of code red,” Hsieh says.

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Source: Bloomberg 09/19/2014

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Record High For American Houshold Net Worth

Recent gains in the stock market and higher home prices helped Americans’ net worth soar to a record high in the second quarter, according to a new report by the Federal Reserve.

Net worth was up 1.7 percent during the quarter, reaching a record high of $81.5 trillion.  net worth

American’s gains in wealth have helped to lift consumer confidence and allowed them to ramp up their borrowing, which could soon prove a boon for the economic growth too. During the second quarter, household debt rose to its fastest pace since 2007, increasing at an annual rate of 3.6 percent, compared to 2.2 percent in the first quarter.

Most of the nation’s largest wealth gains have gone to the affluent, who tend to own stocks, The Wall Street Journal reports. The Standard & Poor’s 500-stock index rose about 5 percent in the second quarter, while Americans also benefited from more modest gains in the real estate market. Home prices ticked up for the 12th consecutive quarter, rising 0.8 percent in the second quarter, according to the Federal Housing Finance Agency’s home price index.

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Source: Reuters 09/18/2014 & Wall Street Journal 09/18/2014

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FHA Fees Are Driving Away First Time Home Buyers

FHA Fees Are Driving Away First Time Buyers:  The Federal Housing Administration’s rise in its mortgage insurance fees in recent years is pricing many “creditworthy Americans out of the market” and causing the number of first-time home buyers to reach new lows, housing analysts argue.

First-time home purchases have fallen to historic lows. They account for about 28 percent of existing-home sales year-to-date – well below the long-term benchmark of 40 percent, according to the National Association of REALTORS®.   home buyers

The 24- to 35-year-old cohort – which usually makes up the largest share of first-time buyers – has been faced with high levels of student debt and stricter underwriting standards that have made it more difficult for them to apply for a mortgage. But in an op-ed piece in American Banker, Richard A. Smith, CEO and president of Realogy Holdings Corp., also notes that the “biggest and most surprising challenge faced by today’s aspiring home owners come from the FHA, the very agency created to help them.”

The agency has more than doubled its mortgage insurance fees since 2010, as it tries to cover a wealth of defaults that the agency faced in the aftermath of the financial crisis.

“This was a necessary step,” notes Smith, who also serves on the housing commission of the Bipartisan Policy Center and the policy advisory board of the Harvard Joint Center for Housing Studies. “However, premiums are still at crisis levels years later. For many would-be home owners, it’s just too much.”

Monthly premiums for FHA-insured mortgage totaled 0.55 percent of the loan amount in 2010. But today, it has bloomed to 1.35 percent – a 145 percent increase, amounting to an additional $120 on a monthly mortgage payment for a $180,000 loan. The up-front fee that borrowers are required to pay the FHA also has risen, increasing from 1 percent of the loan amount to 1.75 percent.

The FHA’s higher mortgage premiums have pushed 1.5 million renters over a sustainable debt-to-income level to qualify for a home loan in 2013, according to National Association of REALTORS®’ research.

As such, the FHA’s lending has fallen sharply too. This year, the FHA will likely assist about 450,000 first-time home buyers, down about 33 percent from its historical averages. From 2009 to 2013, the FHA assisted about 690,000 first-time buyers annually. What’s more, the FHA traditionally supported the purchase of nearly 100,000 condos annually. However, in the past 12 months, the agency has supported only 17,000 condo purchases.

In the op-ed piece, Smith urges the FHA to adjust its policies and reduce its monthly premiums to pre-crisis levels. He also says the FHA should consider enabling borrowers to finance their mortgage insurance over the life of the loan, which would allow the FHA to “improve affordability for consumers without eliminating revenue.” He also notes the alternative that the FHA could eliminate the requirement that buyers pay for mortgage insurance over the entire life of their loan and allow borrowers to drop it when they reach 20 percent equity, as is done in the conforming loan market.

“A new approach to lending policy will be necessary if the U.S. economy is to benefit from a resurgence in first-time home purchases,” Smith says.

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Source: American Banker 09/16/2014

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Americans Squeezed By Rising Rents & Falling Wages

Americans are increasingly becoming cash-strapped, facing rising rents while their paychecks are shrinking or stagnant, RealtyTrac reports. Nationwide, rents have risen by 6 percent over the last decade, according to data compiled from Harvard’s Joint Center for Housing Studies.

Meanwhile, incomes have plunged, falling 13 percent over that same time period. More than half of all renters now are devoting 30 percent or more of their income to paying rent, up from 12 percent a decade ago.                             rents

Among some of the least affordable rental markets (in which the percent of income spent on rent is 42 percent or more) are: Bronx County, New York-Northern New Jersey-Long Island, N.Y.-N.J.-Pa.; Baltimore City, Baltimore-Townson, Md.; Philadelphia County, Philadelphia-Camden-Wilmington, Pa.-N.J.-Del.-Md.; Kings County, New York-Northern New Jersey-Long Island, N.Y.-N.J.-Pa.; and San Francisco County, San Francisco-Oakland-Fremont, Calif., according to a RealtyTrac analysis.

Coinciding with the increase in renting, home ownership rates have been falling.

Traditionally, home owners have long outnumbered renters by more than three to one, according to RealtyTrac. But since the recession, the rate of home ownership has steadily been dropping, falling from a 69.2 percent peak in the fourth quarter of 2004 to 65.2 percent in the fourth quarter of 2013, according to Census data.

The number of renter households has risen to 43 million, or 35.4 percent of all U.S. households, which is up from 31 percent in 2004, according to Harvard data.

“The American Dream of owning a home is still alive and well today in the United States, but it is increasingly under assault by a growing number of renters,” RealtyTrac writes in a recent article.

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Source: RealtyTrac 09/12/2014

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